Dynamic Financing: How Firms Adjust Debt Maturity, Dispersion, Leverage, and Cash to Accommodate Shocks

Abstract I study how firms adjust leverage, debt maturity, and cash to manage profitability shocks, and show that time variation in concentration of maturity dates arises endogenously. To avoid rollover risk, firms prefer long-term debt with dispersed maturity dates. However, severe negative shocks force firms to borrow above an optimal level. They issue short-term debt as a commitment to delever in the next period. This concentrates maturity dates in the next period. The calibrated version of the model matches empirical facts and makes novel predictions regarding dynamics of debt maturity dispersion.