Liquidity Risk, and Maturity Management over the Credit Cycle

35 Pages Posted: 17 Mar 2012 Last revised: 28 Jul 2018

See all articles by Atif R. Mian

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

Date Written: july 18, 2018

Abstract

We show that firm demand-side factors are strong drivers of procyclical refinancing be- havior over the credit cycle using novel data from the Shared National Credit program. Firms are more likely to refinance early when credit conditions are good to keep the ef- fective maturity of their loans long and hedge against having to refinance in tight credit conditions. High credit quality firms are better able to hedge, making their refinancing propensity more sensitive to credit cycles than less creditworthy firms. There is a strong relationship between refinancing a loan, and subsequent growth in capital expenditure, es- pecially when a loan is refinanced early.

Keywords: Refinance, liquidity risk, maturity management

JEL Classification: G21, G32

Suggested Citation

Mian, Atif R. and Santos, João A. C., Liquidity Risk, and Maturity Management over the Credit Cycle (july 18, 2018). Journal of Financial Economics (JFE), Vol. 127, 2018. Available at SSRN: https://ssrn.com/abstract=2023516 or http://dx.doi.org/10.2139/ssrn.2023516

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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