Local institutional investors and debt maturity

We examine the relation between the geographic proximity of institutional investors and debt maturity. We hypothesize and find that firms with more or closer local institutional investors have shorter maturity debt. Analyses based on new debt issues and using SOX as a natural experiment and firm headquarter relocations as exogenous shocks indicate a causal effect of local institutional monitoring on debt maturity. Tests of the underlying mechanism suggest that firms monitored by local institutional investors choose shorter maturity debt to reduce debt and equity agency costs. The results demonstrate that local institutional investors affect firms’ debt maturity choices. •Local institutional investors affect firms’ debt maturity choices.•Firms with more or closer local institutional investors have more short-term debt and issue shorter-term debt.•Firms monitored by local institutional investors choose short-term debt to reduce debt and equity agency costs.