Roll-over Risk and the Dynamics of Liquidity, Leverage and Maturity of Debt

Type Research Project

Duration Jan. 1, 2013 - Jan. 11, 2018
  • Institute for Finance, Banking and Insurance IN (Details)


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  • Chaderina, Maria (Details) Project Head

Abstract (English)

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.