Debt maturity and the liquidity of secondary debt markets

Max Bruche and Anatoli Segura

Journal of Financial Economics, 2017, vol. 124, issue 3, 599-613

Abstract: We model the debt maturity choice of firms in the presence of fixed issuance costs in the primary market and search frictions in the secondary market for debt. In the secondary market, short maturities improve the bargaining position of sellers, which reduces the required issuance yield. Long maturities reduce reissuance costs. The optimally chosen maturity trades off both considerations. Equilibrium exhibits inefficiently short maturity choices. An individual firm does not internalize that a longer maturity increases expected gains from trade in the secondary market, which attracts more buyers and, hence, facilitates the sale of debt issued by other firms.

Keywords: Debt maturity; Search; Liquidity (search for similar items in EconPapers)
JEL-codes: G12 G32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Debt maturity and the liquidity of secondary debt markets (2016)
Working Paper: Debt Maturity and the Liquidity of Secondary Debt Markets (2013)
Working Paper: Debt maturity and the liquidity of secondary debt markets (2013)
Working Paper: Debt Maturity and the Liquidity of Secondary Debt Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:124:y:2017:i:3:p:599-613

DOI: 10.1016/j.jfineco.2017.04.002

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