The Hazards of Debt : Rollover Freezes , Incentives , and Bailouts ∗

@inproceedings{Cheng2010TheHO,
  title={The Hazards of Debt : Rollover Freezes , Incentives , and Bailouts ∗},
  author={I. Cheng and Konstantin Milbradt},
  year={2010}
}
  • I. Cheng, Konstantin Milbradt
  • Published 2010
We investigate the trade-off between incentive provision and rollover freezes for a firm that finances the holding of a long-term asset using staggered short-term debt contracts, and which has a manager who can risk-shift between a high-mean, low-volatility good asset and a low-mean, high-volatility bad asset at any point in time. First, we find that there is such a thing as debt that is too short-term: the optimal maturity is just short enough to prevent the manager from risk-shifting when the… CONTINUE READING
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