A Theory of Multiperiod Debt Structure

Chong Huang, Martin Oehmke and Hongda Zhong

The Review of Financial Studies, 2019, vol. 32, issue 11, 4447-4500

Abstract: We develop a theory of multiperiod debt structure. A simple trade-off between the termination threat required to make debt repayments incentive compatible and the desire to avoid early liquidation determines the number of repayments, their timing, and amounts. As firms increase their borrowing, they add periodic risky repayments from the back of the maturity structure, with the time between repayments increasing in cash-flow risk. Cash-flow growth or a significant risk-free cash-flow component limits the number of risky repayments. Firms with a significant risk-free cash-flow component choose dispersed maturity profiles with smaller, relatively safe repayments every period, rather than riskier periodic repayments. Received May 31, 2017; editorial decision October 8, 2018 by Editor Stijn Van Nieuwerburgh.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhz026 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:rfinst:v:32:y:2019:i:11:p:4447-4500.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().