Risk Shifting versus Risk Management in Debt Rollover

53 Pages Posted: 25 Aug 2013 Last revised: 26 Feb 2016

See all articles by Bo Li

Bo Li

Tsinghua University - PBC School of Finance

Date Written: February 19, 2016

Abstract

Does risk shifting incentives or risk management incentives dominate when firms rollover large amounts of maturing debt? The empirical evidence supports the risk management hypothesis by identifying a hump-shaped relation between long-term debt maturity and firm risk. Using difference-in-differences approach that relies on the ex-ante variation in long-term debt at the onset of the crisis of 2007, I find that firms with greater exposure to rollover risk increase R&D intensive investments. This paper high-light that the incentive to avoid financial distress plays a significant role in explaining the riskiness of investments.

Keywords: Debt heterogeneity; Market liquidity, Refinancing risk; Risk management

JEL Classification: G01, G11, G21, G31, G32

Suggested Citation

Li, Bo, Risk Shifting versus Risk Management in Debt Rollover (February 19, 2016). PBCSF-NIFR Research Paper No. 13-02, Available at SSRN: https://ssrn.com/abstract=2315449 or http://dx.doi.org/10.2139/ssrn.2315449

Bo Li (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
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Beijing 100083
China
+86 10-627982146 (Phone)

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