Endogenous Credit Spreads and Optimal Debt Financing Structure in the Presence of Liquidity Risk

Lütkebohmert, E; Oeltz, D; Xiao, Y

Endogenous Credit Spreads and Optimal Debt Financing Structure in the Presence of Liquidity Risk

Lütkebohmert, E Oeltz, D Xiao, Y

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Publisher:: Wiley: 24 months
Publication Type:: Journal Article
Citation:: European Financial Management, 2017, 23 (1), pp. 55 - 86
Issue Date:: 2017

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Field	Value	Language
dc.contributor.author	Lütkebohmert, E	en_US
dc.contributor.author	Oeltz, D	en_US
dc.contributor.author	Xiao, Y	en_US
dc.date.issued	2017	en_US
dc.identifier.citation	European Financial Management, 2017, 23 (1), pp. 55 - 86	en_US
dc.identifier.issn	1468-036X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/124217
dc.description.abstract	We present a structural model that allows a ﬁrm to effectively manage its exposure to both insolvency and illiquidity risk inherent in its ﬁnancing structure. Besides insolvency risk, the ﬁrm is exposed to rollover risk through possible runs by short-term creditors. Moreover, asset price volatilities are subject to macroeconomic shocks and inﬂuence creditors’ risk attitudes and margin requirements. Credit spreads are derived endogenously depending on the ﬁrm’s total default risk. Equity holders have to bear the rollover losses. An optimal debt structure that maximises the ﬁrm’s equity value is determined by trading off lower ﬁnancing costs and higher rollover risk	en_US
dc.publisher	Wiley: 24 months	en_US
dc.relation.ispartof	European Financial Management	en_US
dc.relation.isbasedon	10.1111/eufm.12089	en_US
dc.subject.classification	Finance	en_US
dc.title	Endogenous Credit Spreads and Optimal Debt Financing Structure in the Presence of Liquidity Risk	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	23	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	23	en_US

Abstract:

We present a structural model that allows a ﬁrm to effectively manage its exposure to both insolvency and illiquidity risk inherent in its ﬁnancing structure. Besides insolvency risk, the ﬁrm is exposed to rollover risk through possible runs by short-term creditors. Moreover, asset price volatilities are subject to macroeconomic shocks and inﬂuence creditors’ risk attitudes and margin requirements. Credit spreads are derived endogenously depending on the ﬁrm’s total default risk. Equity holders have to bear the rollover losses. An optimal debt structure that maximises the ﬁrm’s equity value is determined by trading off lower ﬁnancing costs and higher rollover risk

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/124217