TY  - JOUR
AU  - He,Zhiguo
AU  - Xiong,Wei
TI  - Rollover Risk and Credit Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15653
PY  - 2010
Y2  - January 2010
UR  - http://www.nber.org/papers/w15653
L1  - http://www.nber.org/papers/w15653.pdf
N1  - Author contact info:
Zhiguo He
University of Chicago
Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/834-3769
E-Mail: zhiguo.he@chicagobooth.edu

Wei Xiong
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ  08450
Tel: 609/258-0282
Fax: 609/258-0771
E-Mail: wxiong@princeton.edu
AB  - This paper models a firm's rollover risk generated by conflict of interest between debt and equity holders. When the firm faces losses in rolling over its maturing debt, its equity holders are willing to absorb the losses only if the option value of keeping the firm alive justifies the cost of paying off the maturing debt. Our model shows that both deteriorating market liquidity and shorter debt maturity can exacerbate this externality and cause costly firm bankruptcy at higher fundamental thresholds. Our model provides implications on liquidity-spillover effects, the flight-to-quality phenomenon, and optimal debt maturity structures.
ER  -