A Model for Corporate Debt Maturity Decisions

James R. Morris

Journal of Financial and Quantitative Analysis, 1976, vol. 11, issue 3, 339-357

Abstract: Whenever the firm must borrow funds, it must also decide maturity of the new debt. Yet, the decision models which have dealt with the debt maturity decision have done so almost incidentally, as an extension of the decision to exercise the call provision on outstanding bonds ([6], [10], [23]). There has been little direct examination of the corporate debt maturity decision. In an attempt to fill this gap, this paper is an exploration of the debt maturity decision for a firm which is concerned with minimizing the present value of the expected costs of borrowing. This paper develops a discrete dynamic programming model of the debt maturity decision, in a world where interest rates follow a finite Markov process, and where the yield curve is formed from expectations regarding the future course of interest rates. With this optimization model, the influence on the debt maturity strategy of variables such as flotation costs and liquidity premiums will be explored. There will be no consideration of the risks associated with alternative borrowing strategies.

Date: 1976
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:11:y:1976:i:03:p:339-357_02

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().