Debt Maturity and Lumpy Debt

70 Pages Posted: 12 Feb 2016 Last revised: 12 Nov 2017

Thomas Geelen

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Date Written: July 19, 2016

Abstract

I develop a dynamic capital structure model in which shareholders determine a firm's leverage ratio, debt maturity, and default strategy. In my model, the firm's debt matures all at once. Therefore, after repaying the principal shareholders own all the firm's cash flows and can pick a new capital structure. The possibility to alter the capital structure at maturity gives shareholders the incentive to issue finite maturity debt and allows me to study firms' joint choice of leverage and debt maturity. I also extend my model by allowing for time-varying capital supply to study time-variation in firms' joint choice of leverage and debt maturity.

Keywords: debt maturity, capital structure, default

JEL Classification: G32, G33, G34

Suggested Citation

Geelen, Thomas, Debt Maturity and Lumpy Debt (July 19, 2016). Available at SSRN: https://ssrn.com/abstract=2731636 or http://dx.doi.org/10.2139/ssrn.2731636

Thomas Geelen (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Switzerland

HOME PAGE: http://www.thomasgeelen.com

Swiss Finance Institute

c/o University of Geneva
42, Bd du Pont d'Arve
Geneva, CH-1211
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
162
rank
170,488
Abstract Views
784
PlumX