Financing Cycles

84 Pages Posted: 9 Feb 2022 Last revised: 22 Apr 2022

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: February 7, 2022


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. These firm-level financing cycles drive aggregate leverage and maturity dynamics when capital age is correlated across firms. 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 structure, leverage, debt maturity, capital age, financing cycles

JEL Classification: E32, G31, G32

Suggested Citation

Geelen, Thomas and Hajda, Jakub and Morellec, Erwan and Winegar, Adam, Financing Cycles (February 7, 2022). Available at SSRN: or

Thomas Geelen

Copenhagen Business School - Department of Finance

Solbjerg Plads 3
Copenhagen, Frederiksberg 2000

Danish Finance Institute ( email )

Jakub Hajda

HEC Montreal - Department of Finance ( email )

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

Erwan Morellec (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

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


Swiss Finance Institute

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

Adam Winegar

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

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