Systematic risk, debt maturity, and the term structure of credit spreads
Name
SSRN-id2024329.pdf
Description
Accepted version
Size
2.07 MB
Format
Adobe PDF
Checksum (MD5)
a5af87759526148382021ea7b1b43578
Author(s)
Chen, Hui
Xu, Yu
Yang, Jun
Date Issued
2021
Journal
Journal of Financial Economics
Publisher
Elsevier BV
Citation
Chen, Hui, Xu, Yu and Yang, Jun. 2021. "Systematic risk, debt maturity, and the term structure of credit spreads." Journal of Financial Economics, 139 (3).
Version
Author's final manuscript
Abstract
© 2020 Elsevier B.V. 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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/J.JFINECO.2020.09.002
