Endogenous Debt Maturity and Rollover Risk
Financial Management, Forthcoming
42 Pages Posted: 15 Jun 2016 Last revised: 22 Aug 2018
There are 2 versions of this paper
Endogenous Debt Maturity and Rollover Risk
Endogenous Debt Maturity and Rollover Risk
Date Written: August 21, 2018
Abstract
We empirically study the nature of rollover risk and show how banks manage it. Having to roll over debt does not lead to higher default risk per se. Only banks that lose significant access to new funding while having to roll over debt display higher default risk. We identify a factor that determines this build-up of risk: specifically, debt maturity shortening (forcing debt to be more frequently rolled) and reduced access to new funding are both driven by market pessimism about bank's future performance. We also provide evidence consistent with dynamic coordination risk.
Keywords: Banks, Maturity Shortening, Rollover Risk, Debt Issuance, Financial Crisis
JEL Classification: G01, G21, G32
Suggested Citation: Suggested Citation