Liquidity Risk, and Maturity Management over the Credit Cycle
35 Pages Posted: 17 Mar 2012 Last revised: 28 Jul 2018
Date Written: july 18, 2018
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: Suggested Citation