Financing Cycles

67 Pages Posted: 9 Feb 2022 Last revised: 17 Jan 2023

See all articles by Thomas Geelen

Thomas Geelen

Copenhagen Business School - Department of Finance; Danish Finance Institute

Jakub Hajda

HEC Montreal - Department of Finance

Erwan Morellec

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Adam Winegar

BI Norwegian Business School

Date Written: January 17, 2023

Abstract

Capital ages and must eventually be replaced. We propose a theory of financing in which firms finance new capital with debt and optimally deleverage to free up debt capacity as their capital ages, thereby generating debt cycles. Concurrently, firms shorten the maturity of their debt to match the remaining life of their capital, generating maturity cycles. We provide time series and cross-sectional evidence that strongly supports these independent predictions and highlights the key roles of capital age and asset life in financing cycles.

Keywords: capital age, debt cycles, maturity cycles

JEL Classification: E32, G31, G32

Suggested Citation

Geelen, Thomas and Hajda, Jakub and Morellec, Erwan and Winegar, Adam, Financing Cycles (January 17, 2023). Available at SSRN: https://ssrn.com/abstract=4025812 or http://dx.doi.org/10.2139/ssrn.4025812

Thomas Geelen

Copenhagen Business School - Department of Finance

Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

Danish Finance Institute ( email )

Jakub Hajda

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Erwan Morellec (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

College of Management
Extranef Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland

HOME PAGE: http://sfi.epfl.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Adam Winegar

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
181
Abstract Views
907
Rank
249,859
PlumX Metrics