Optimal Maturity Structure with Multiple Debt Claims

Posted: 23 Dec 1999

See all articles by Joel F. Houston

Joel F. Houston

University of Florida - Department of Finance, Insurance and Real Estate

S. Venkatarman

University of Florida - Warrington College of Business Administration

Abstract

This paper provides an explanation for why firms may choose to simultaneously issue multiple debt claims with varying maturities. The optimal mix of short- and long-term debt allows the firm to precommit to a more efficient liquidationpolicy. Even in risk-neutral settings, the optimal mix hinges critically on the mean and the variability of the firm's liquidation value. Determining the optimal mix of debt is more complex than just weighing the costs of issuing short- or long-term debt exclusively. The implications of alternate priority structures, informational settings, interest rate uncertainty, and maturity matching strategies are also considered.

JEL Classification: G32

Suggested Citation

Houston, Joel F. and Venkatarman, S., Optimal Maturity Structure with Multiple Debt Claims. Available at SSRN: https://ssrn.com/abstract=5361

Joel F. Houston

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

S. Venkatarman (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States
(904) 392-0153 (Phone)
(904) 392-2086 (Fax)

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