When a firm is unable to roll over its debt, it may have to seek more expensive sources of financing or even liquidate its assets. This paper provides a normative analysis of minimizing such rollover risk, through the optimal dynamic choice of the maturity structure of debt. The objective of a firm with long-term assets is to maximize the effective maturity of its liabilities across several refinancing cycles, rather than to maximize the maturity of the current bonds outstanding. An advantage of short-term financing is that a firm, while in good financial health, can readjust its maturity structure more quickly in response to changes in its asset value.
You may purchase this paper on-line in .pdf format
from SSRN.com ($5) for electronic delivery.
This paper was revised on August 26, 2009
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
