Debt maturity and stock price crash risk: Evidence from the Nordic countries

Sammanfattning

This thesis investigates the relationship between the debt maturity and the stock price crash risk in the Nordic countries. A sample of data on listed Nordic firms between 1989-2022 is used to conduct OLS regressions with firm- and year fixed effects between variables representing different types of debt and the crash risk measures NCSKEW and DUVOL. It is found that companies with a larger ratio of short-term debt relative to both total debt and assets are associated with greater risk of stock price crashes. This is suggested to be because increased levels of short-term debt impose additional financial distress costs that exceed the value of the gained monitoring benefits. The result is proposed to be a consequence of the high level of disclosure transparency in the Nordic countries where the marginal utility and financial incentives of additional monitoring is believed to be decreased whilst the cost of the financial distress that the form of debt imposes remains. This thesis contributes to previous research by examining the Nordic market, thereby giving the Nordic investor valuable insight into how the form of debt can affect company specific risk and could be of great use when valuing companies and peers in the future.