NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dynamic Debt Maturity

Zhiguo He, Konstantin Milbradt

NBER Working Paper No. 21919
Issued in January 2016
NBER Program(s):Asset Pricing, Corporate Finance

A firm chooses its debt maturity structure and default timing dynamically, both without commitment. Via the fraction of newly issued short-term bonds, equity holders control the maturity structure, which affects their endogenous default decision. A shortening equilibrium with accelerated default emerges when cash-flows deteriorate over time so that debt recovery is higher if default occurs earlier. Self-enforcing shortening and lengthening equilibria may co-exist, with the latter possibly Pareto-dominating the former. The inability to commit to issuance policies can worsen the Leland-problem of the inability to commit to a default policy—a self-fulfilling shortening spiral and adverse default policy may arise.

download in pdf format
   (860 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21919

Published: Zhiguo He & Konstantin Milbradt, 2016. "Dynamic Debt Maturity," Review of Financial Studies, vol 29(10), pages 2677-2736.

Users who downloaded this paper also downloaded* these:
Cúrdia and Woodford w21820 Credit Frictions and Optimal Monetary Policy
Leeper w21822 Fiscal Analysis is Darned Hard
Elenev, Landvoigt, and Van Nieuwerburgh w21626 Phasing Out the GSEs
Barro and Jin w21871 Rare Events and Long-Run Risks
Card and Giuliano w21519 Can Universal Screening Increase the Representation of Low Income and Minority Students in Gifted Education?
 
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