Firms’ financing choice between short-term and long-term debts: Are they substitutes?

Samuel J. Hempel, Yi Li and Sean Tibay
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Samuel J. Hempel: https://www.federalreserve.gov/econres/sam-hempel.htm
Yi Li: https://www.federalreserve.gov/econres/yi-li.htm

No 2024-05-03-1, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: When selecting debt to finance their operations and investments, companies face crucial decisions regarding the appropriate types of debt. Despite the classic Modigliani–Miller (1958) capital structure irrelevance result, real-world market frictions can significantly impact a firm's capital structure decisions. This reality means that one debt type is not a perfect substitute for another, due to differences in important factors including maturity structures, funding purposes, rollover risks, and funding costs.

Date: 2024-05-03
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2024-05-03-1

DOI: 10.17016/2380-7172.3438

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