NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Maturity Rationing and Collective Short-Termism

Konstantin Milbradt, Martin Oehmke

NBER Working Paper No. 19946
Issued in February 2014
NBER Program(s):Corporate Finance

Financing terms and investment decisions are jointly determined. This interdependence links firms' asset and liability sides and can lead to short-termism in investment. In our model, financing frictions increase with the investment horizon, such that financing for long-term projects is relatively expensive and potentially rationed. In response, firms whose first-best investment opportunities are long-term may change their investments towards second-best projects of shorter maturities. This worsens financing terms for firms with shorter maturity projects, inducing them to change their investments as well. In equilibrium, investment is inefficiently short-term. Equilibrium asset-side adjustments by firms can amplify shocks and, while privately optimal, can be socially undesirable.

download in pdf format
   (548 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19946

Published:

Users who downloaded this paper also downloaded* these:
Blinder and Watson w20324 Presidents and the U.S. Economy: An Econometric Exploration
Glaeser and Nathanson w20426 Housing Bubbles
Hanson, Shleifer, Stein, and Vishny w20288 Banks as Patient Fixed-Income Investors
Galí and Gambetti w19981 The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence
Guvenen, Kaplan, and Song w19864 How Risky Are Recessions for Top Earners?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us