Maturity Rationing and Collective Short-Termism

50 Pages Posted: 20 Mar 2012 Last revised: 10 Dec 2015

Multiple version iconThere are 2 versions of this paper

Date Written: March 18, 2014


Financing terms and investment decisions are jointly determined. This interdependence, which links firms’ asset and liability sides, can lead to short-termism in investment. In our model, financing frictions increase with the investment horizon, such that financing for long-term projects is relatively expensive and potentially rationed. In response, firms whose first-best investments are long-term may adopt second-best projects of shorter maturities. This worsens financing terms for firms with shorter maturity projects, inducing them to change their investments as well. In equilibrium, investment is inefficiently short-term. Equilibrium asset-side adjustments by firms can amplify shocks and, while privately optimal, can be socially undesirable.

Keywords: short-termism, asset maturity, credit rationing, asymmetric information, cross-firm externality

JEL Classification: G11, G30, G31, G32

Suggested Citation

Milbradt, Konstantin and Oehmke, Martin, Maturity Rationing and Collective Short-Termism (March 18, 2014). Journal of Financial Economics, 2015, 118(3), 553-570. Available at SSRN: or

Konstantin Milbradt (Contact Author)

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

Martin Oehmke

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

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