Optimal Debt Maturity Structure, Rollover Risk and Strategic Uncertainty
نویسنده
چکیده
This paper analyzes debt maturity structure for a borrower in a setting where creditors are faced with strategic uncertainty. In contrast to the existing literature, I examine the e¤ects of strategic uncertainty on the issuance of debt in an environment where face values of debt are determined endogenously and directly a¤ect investors rollover decisions. I nd that strategic uncertainty has a strong e¤ect on the decisions of both the rm and investors, especially at the rollover stage. As strategic uncertainty increases investors are less willing to roll over short-term debt and the borrower shifts towards long-term debt. Finally, I use the model to study the e¤ects of a sudden deterioration in secondary markets and debt overhang issues on the debt maturity structure, face value of debt and default decisions. Key words: debt overhang, global games, maturity structure, rollover risk, strategic uncertainty JEL codes: G32, G33 1 Introduction The recent crisis of 2007-2009 emphasized the importance of re nancing risk.1 While the crisis started in the nancial sector it quickly spilled over to the real sector severely a¤ecting non- nancial rmsaccess to credit. During that time many rms were forced to default being suddenly unable to repay or roll over their existing debt. Figure 1 shows that years 2008-2009 witnessed an unprecedented number of corporate defaults and defaulted debt I would like to thank Jess Benhabib, Douglas Gale, Tomasz Sadzik, Tom Sargent and Laura Veldkamp for their comments. All remaining errors are my own. 1Re nancing risk is the risk that a borrower cannot roll over its existing debt.
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