Expanding on ideas implicit or explicit in Fama(1990), this paper develops an empirical prediction with respect to the maturity structure of debt securities in the context of the overall contract structure of a firm. I develop a hypothesis that higher...
Expanding on ideas implicit or explicit in Fama(1990), this paper develops an empirical prediction with respect to the maturity structure of debt securities in the context of the overall contract structure of a firm. I develop a hypothesis that higher fractions of fixed-payoff contracts should result in shorter maturities of debt securities. Using Compustat data, supporting evidence is found for this specific prediction implied by Fama's contract-cost hypothesis of financing decisions.