A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Topic
Systematic Risk Debt Maturity and the Term Structure of Credit Spreads
Resource type
Title
Systematic Risk Debt Maturity and the Term Structure of Credit Spreads
Abstract
We document several facts about corporate debt maturity: (1) debt maturity is pro-cyclical, (2) higher-beta firms tend to have longer maturity, and (3) shorter maturity amplifies the sensitivity of credit spreads to aggregate shocks. We present a dynamic capital structure model that explains these facts. In the model, leverage and maturity choices are interdependent, which reflect the tradeoffs of liquidity discounts of long-term debt, repayment risks of short-term debt, and the benefit of short-term debt as a commitment device for timely leverage adjustments. Additionally, the model helps quantify the effects of maturity dynamics on the term structure of credit spreads.
Publication
Journal of Financial Economics
Volume
139
Issue
S0304405X20302610
Pages
770-799
Date
2021
Citation
Chen, H., Xu, Y., & Yang, J. (2021). Systematic Risk Debt Maturity and the Term Structure of Credit Spreads. Journal of Financial Economics, 139, 770–799.
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