Debt Maturity : What Do Economists Say ? What Do CFOs Say ?

Any homeowner who has shopped around for a mortgage would recognize many of the concerns facing the chief financial officer (CFo) puzzling over her firm’s optimal debt maturity. A CFo may ask, “Should my firm sell a long-term bond and lock in the current 30-year rate, or should my firm sell a five-year note and refinance in five years?” one of the CFo’s concerns is that the five-year loan may subject ike households, firms that borrow money to finance operations must make decisions about the optimal maturity of their debt. Should a firm take a short-term loan now and refinance later? or is the firm better off locking in a long-term interest rate now? In this article, Mitchell berlin discusses recent theories of how firms choose their debt maturity. Some of these theories are very useful for explaining how chief financial officers (CFos) choose the maturity of their firms’ debt. however, CFos seem to believe that they can predict future interest rates and time their borrowings accordingly, and this behavior fundamentally conflicts with most economic theories.