Year: 2010
Type: article
Abstract: ABSTRACT Why do some firms, especially financial institutions, finance themselves so short‐term? We show that extreme reliance on short‐term financing may be the outcome of a maturity rat race: a borrower may have an incentive to shorten the maturity of an individual creditor's debt contract because this dilutes other creditors. In response, other creditors opt for shorter maturity contracts as well. This dynamic toward short maturities is present whenever interim information is mostly about the probability of default rather than the recovery in default. For borrowers that cannot commit to a maturity structure, equilibrium financing is inefficiently short‐term.
Source: The Journal of Finance
DOI: 10.1111/jofi.12005
Authors: MARKUS K. BRUNNERMEIER, MARTIN OEHMKE
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
Funder: BNP Paribas Cardif
OpenAlex ID: W2062432064