Project Details
Description
I study the joint dynamics of leverage, maturity and liquidity choices of a firm. Long-term debt limits the firm’s exposure to roll-over losses driven by credit-spread risk, but short-term debt gives firms more flexibility in reducing leverage. Firms optimally have positive cash and debt balances, firms close to default prefer short-term debt, the relation between leverage and maturity is positive, and maturity dates are non-evenly spread-out. Higher volatility of cash flows makes firms opt for shorter-maturity debt, while the higher volatility of credit spreads makes firms chose longer-term borrowing and higher cash balances.
Status | Finished |
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Effective start/end date | 1/01/13 → 11/01/18 |
Links | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2530969 |