Starjournal Quotation Dangl, Thomas, Zechner, Josef. 2021. Debt Maturity and the Dynamics of Leverage. Review of Financial Studies.


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Abstract

This paper shows that short debt maturities commit equityholders to leverage reductions when refinancing expiring debt in low-profitability states. However, shorter maturities lead to higher transactions costs since larger amounts of expiring debt need to be refinanced. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage in low-profitability states, motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress and risky cash flows benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt. Empirical evidence supports the model predictions.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Review of Financial Studies
Citation Index SSCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title Debt Maturity and the Dynamics of Leverage
Year 2021
Reviewed? Y
URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=890228
DOI http://dx.doi.org/10.1093/rfs/hhaa148
Open Access Y
Open Access Link https://watermark.silverchair.com/hhaa148.pdf?token=AQECAHi208BE49Ooan9kkhW_Ercy7Dm3ZL_9Cf3qfKAc485ysgAAArQwggKwBgkqhkiG9w0BBwagggKhMIICnQIBADCCApYGCS
JEL G3, G32

Associations

People
Zechner, Josef (Details)
External
Dangl, Thomas (Vienna University of Technology, Austria)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Research Institute for Capital Markets FI (Details)
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