Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202865 
Year of Publication: 
2017
Series/Report no.: 
Danmarks Nationalbank Working Papers No. 125
Publisher: 
Danmarks Nationalbank, Copenhagen
Abstract: 
I study the business cycle dynamics of the maturity structure of the debt of U.S. non-financial firms. I document three facts: First, the aggregate share of long-term debt in total debt is pro-cyclical. Second, the long-term debt share of small firms has a higher standard deviation and correlation with output than the long-term debt share of large firms. Third, large firms tend to use a larger share of long-term debt in general. To account for these facts, I construct a quantitative dynamic equilibrium model in which firms optimally choose investment, leverage, debt maturity, dividends, and default, subject to idiosyncratic and aggregate risk. When they choose their debt maturity, firms trade off default premia and rollover costs. As a result, financially constrained firms endogenously prefer to issue short-term debt, because they face high default premia on long-term debt. Financially unconstrained firms issue long-term debt, because it has lower rollover costs. The model, which is parameterized to match cross-sectional moments, can match stylized facts about the level and dynamics of the maturity structure of debt, both in the aggregate and along the firm size distribution.
Subjects: 
Financial stability
Business enterprises and households
Models
JEL: 
E32
E44
G32
G33
Document Type: 
Working Paper

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