Debt Maturity Structure and Liquidity Risk

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ID: 291325
1991
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Abstract
This paper analyzes debt maturity structure for borrowers with private information about their future credit rating. Borrowers' projects provide them with rents that they cannot assign to lenders. The optimal maturity structure trades off a preference for short maturity due to expecting their credit rating to improve, against liquidity risk. Liquidity risk is the risk that a borrower will lose the nonassignable rents due to excessive liquidation incentives of lenders. Borrowers with high credit ratings prefer short-term debt, and those with somewhat lower ratings prefer long-term debt. Still lower rated borrowers can issue only short-term debt.
Reference Key
openalex_W2087178224 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Douglas W. Diamond
Journal the quarterly journal of economics
Year 1991
DOI
10.2307/2937924
URL
https://doi.org/10.2307/2937924
Keywords Keywords not found

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