When a firm is unable to roll over its debt, it may have to seek more expensive sources of financing or even liquidate its assets. This paper provides a normative analysis of minimizing such rollover risk, through the optimal dynamic choice of the maturity structure of debt. The objective of a firm with long-term assets is to maximize the effective maturity of its liabilities across several refinancing cycles, rather than to maximize the maturity of the current bonds outstanding. An advantage of short-term financing is that a firm, while in good financial health, can readjust its maturity structure more quickly in response to changes in its asset value.
}, year = {2009}, journal = {American Economic Review}, volume = {99}, number = {2}, pages = {578-83}, note = {Duration hedging might give the wrong prescription for minimizing rollover risk.
}, language = {eng}, }