Short-term debt and incentives for risk-taking

• 成果类型: Article
• 署名作者: Della Seta, Marco; Morellec, Erwan; Zucchi, Francesca
• 署名单位: Swiss Federal Institutes of Technology Domain; Ecole Polytechnique Federale de Lausanne; Swiss Finance Institute (SFI); Centre for Economic Policy Research - UK; Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.07.008
• 发表日期: 2020
• 页码: 179-203
• 关键词: Short-term debt financing; Rollover risk; risk-taking; Financing frictions

摘要

We challenge the view that short-term debt curbs moral hazard and demonstrate that, in a world with financing frictions and fair debt pricing, short-term debt generates incentives for risk-taking. To do so, we develop a model in which firms are financed with equity and short-term debt and cannot freely optimize their default decision because of financing frictions. We show that when firms are close to distress, the dynamic interaction of operating and rollover losses fuels default risk. In such instances, shareholders find it optimal to increase asset risk to improve interim debt repricing and prevent inefficient liquidation. These risk-taking incentives do not arise when debt maturity is sufficiently long. (C) 2020 Elsevier B.V. All rights reserved.