Abstract

http://ssrn.com/abstract=2023516
 
 

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Liquidity Risk, and Maturity Management over the Credit Cycle


Atif R. Mian


Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

João A. C. Santos


Federal Reserve Bank of New York

May 15, 2011


Abstract:     
We use the Shared National Credit data on syndicate loans to investigate U.S. firms’ refinancing behavior over the last two decades. As credit conditions tighten, refinancing likelihood goes down and draw down on loan commitments increases sharply. Surprisingly, refinancing propensity is most sensitive to credit market conditions for credit worthy firms. We show that this is a result of active maturity management by credit worthy firms to avoid being exposed to liquidity risk. Credit worthy firms refinance early at a significantly higher rate when credit conditions are good in order to keep the effective maturity of their loans long. They can then afford to refinance at a lower rate when credit conditions tighten. We show that these results are driven by variation in credit market conditions and not business cycle fluctuation.

Number of Pages in PDF File: 49

Keywords: Refinance, liquidity risk, maturity management

JEL Classification: G21, G32

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Date posted: March 17, 2012 ; Last revised: April 14, 2013

Suggested Citation

Mian, Atif R. and Santos, João A. C., Liquidity Risk, and Maturity Management over the Credit Cycle (May 15, 2011). Available at SSRN: http://ssrn.com/abstract=2023516 or http://dx.doi.org/10.2139/ssrn.2023516

Contact Information

Atif R. Mian
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
João A. C. Santos (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)
HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML
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