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A Gap-Filling Theory of Corporate Debt Maturity Choice

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Author Info
Robin Greenwood
Samuel Hanson
Jeremy C. Stein

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Abstract

We argue that time-series variation in the maturity of aggregate corporate debt issues arises because firms behave as macro liquidity providers, absorbing the large supply shocks associated with changes in the maturity structure of government debt. We document that when the government funds itself with relatively more short-term debt, firms fill the resulting gap by issuing more long-term debt, and vice-versa. This type of liquidity provision is undertaken more aggressively: i) in periods when the ratio of government debt to total debt is higher; and ii) by firms with stronger balance sheets. Our theory provides a new perspective on the apparent ability of firms to exploit bond-market return predictability with their financing choices.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14087.

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Date of creation: Jun 2008
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Handle: RePEc:nbr:nberwo:14087

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management

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