A Note on Liquidity Risk Management

Markus Brunnermeier and Motohiro Yogo

No 14727, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-rmg
Note: AP CF
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Citations: View citations in EconPapers (38)

Published as Markus K. Brunnermeier & Motohiro Yogo, 2009. "A Note on Liquidity Risk Management," American Economic Review, American Economic Association, vol. 99(2), pages 578-83, May.

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