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Cyclical Demand and the Choice of Debt Maturity

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  • Emery, Gary W
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    Abstract

    This study provides a model in which a supplier's use of short- and long-term debt depends on the demand for its product. The model predicts that suppliers use short-term debt to match their assets' and liabilities' maturities and that their incentive to do so is stronger, the larger the term premium. The model also predicts that the use of short-term debt increases the amplitudes of the supplier's investment, production, and sales cycles. These changes occur because the use of short-term debt permits suppliers to match production and sales more closely to the pattern of demand for the final good. Copyright 2001 by University of Chicago Press.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 74 (2001)
    Issue (Month): 4 (October)
    Pages: 557-90

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    Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:4:p:557-90

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Andreas Stephan & Oleksandr Talavera & Andriy Tsapin, 2010. "Corporate Debt Maturity Choice in Emerging Financial Markets," University of East Anglia Applied and Financial Economics Working Paper Series 010, School of Economics, University of East Anglia, Norwich, UK..
    2. Andreas Stephan & Oleksandr Talavera & Andriy Tsapin, 2008. "Corporate Debt Maturity Choice in Transition Financial Markets," Discussion Papers of DIW Berlin 784, DIW Berlin, German Institute for Economic Research.
    3. Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2010. "Are small firms more sensitive to financial variables?," Working Papers 2072/151623, Universitat Rovira i Virgili, Department of Economics.
    4. Lai, Van Son & Soumaré, Issouf, 2010. "Credit insurance and investment: A contingent claims analysis approach," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 98-107, March.
    5. Manak Gupta & Alice Lee, 2006. "An Integrated Model of Debt Issuance, Refunding, and Maturity," Review of Quantitative Finance and Accounting, Springer, vol. 26(2), pages 177-199, March.
    6. Chang Woon Nam & Doina Maria Radulescu, 2004. "Does Debt Maturity Matter for Investment Decisions?," CESifo Working Paper Series 1124, CESifo Group Munich.
    7. Chang Nam & Doina Radulescu, 2010. "Effects of corporate tax reform on optimum debt maturity," Annals of Finance, Springer, vol. 6(3), pages 369-389, July.

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