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Endogenous debt maturity and rollover risk
Author(s) -
Brancati Emanuele,
Macchiavelli Marco
Publication year - 2018
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12250
Subject(s) - rollover (web design) , maturity (psychological) , debt , business , pessimism , monetary economics , financial system , economics , finance , computer science , psychology , developmental psychology , world wide web , philosophy , epistemology
We empirically study the nature of rollover risk and show how banks manage it. Having to roll over debt does not lead to higher default risk per se. Only banks that lose significant access to new funding while having to roll over debt display higher default risk. We identify a factor that determines this buildup of risk: specifically, debt maturity shortening (forcing debt to be more frequently rolled over) and reduced access to new funding are both driven by market pessimism about banks’ future performance. We also provide evidence consistent with dynamic coordination risk.