NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dynamic Debt Runs

Zhiguo He, Wei Xiong

NBER Working Paper No. 15482
Issued in November 2009
NBER Program(s):   AP   CF   ME

We develop a dynamic model of debt runs on a firm, which invests in an illiquid asset by rolling over staggered short-term debt contracts. We derive a unique threshold equilibrium, in which creditors coordinate their asynchronous rollover decisions based on the firm's publicly observable and time-varying fundamental. Fear of the firm's future rollover risk motivates each maturing creditor to run ahead of others even when the firm is still solvent. Our model provides implications on the roles played by volatility, illiquidity and debt maturity in driving debt runs, as well as on firms' capital adequacy standards and credit risk.

download in pdf format
   (410 K)

email paper

This paper is available as PDF (410 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15482

Published: Dynamic Debt Runs, with Wei Xiong, 2012, Review of Financial Studies 25, pp. 1799-1843.

Users who downloaded this paper also downloaded these:
Lorenzoni w12477 A Theory of Demand Shocks
Diamond and Rajan w14925 Fear of Fire Sales and the Credit Freeze
Laibson and Mollerstrom w15759 Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis
Aguiar and Gopinath w10734 Emerging Market Business Cycles: The Cycle is the Trend
Kiyotaki and Moore w5083 Credit Cycles
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us