TY  - JOUR
AU  - Diamond,Douglas W.
AU  - He,Zhiguo
TI  - A Theory of Debt Maturity: The Long and Short of Debt Overhang
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18160
PY  - 2012
Y2  - June 2012
UR  - http://www.nber.org/papers/w18160
L1  - http://www.nber.org/papers/w18160.pdf
N1  - Author contact info:
Douglas W. Diamond
Booth School of Business
University of Chicago
5807 S Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-7283
E-Mail: douglas.diamond@chicagobooth.edu

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
AB  - Debt maturity influences debt overhang: the reduced incentive for highly- levered borrowers to make real investments because some value accrues to debt.  Reducing maturity can increase or decrease overhang even when shorter-term debt’s value depends less on firm value. Future overhang is more volatile for shorter-term debt, making future investment incentives volatile and influencing immediate investment incentives. With immediate investment, shorter-term debt typically imposes lower overhang; longer-term debt can impose less if firm value is more volatile in bad times. For future investments, reduced correlation between the value of assets-in-place and profitability of investment increases the overhang of shorter-term debt.
ER  -