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Debt Maturity and the Dynamics of Leverage
| Content Provider | Scilit |
|---|---|
| Author | Dangl, Thomas Zechner, Josef |
| Copyright Year | 2016 |
| Description | Journal: SSRN Electronic Journal This paper shows that long debt maturities eliminate equity holders’ incentives to reduce leverage when the firm performs poorly. By contrast, short debt maturities commit equity holders to such leverage reductions. However, shorter debt maturities also lead to higher transactions costs when maturing bonds must be refinanced. We show that this tradeoff between higher expected transactions costs against the commitment to reduce leverage when the firm is doing poorly motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt. |
| Related Links | http://publikationen.ub.uni-frankfurt.de/files/41866/SSRN-id2858756.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2858756 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.2858756 |
| Journal | SSRN Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2016-06-15 |
| Access Restriction | Open |
| Subject Keyword | Journal: SSRN Electronic Journal |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
