Maturity Rationing and Collective Short-Termism

Abstract

Financing terms and investment decisions are jointly determined.This interdependence links firms' asset and liability sides and can lead to short-termism in investment.In our model, financing frictions increase with the investment horizon, such that financing for long-term projects is relatively expensive and potentially rationed.In response, firms whose first-best investment opportunities are long-term may change their investments towards second-best projects of shorter maturities.This worsens financing terms for firms with shorter maturity projects, inducing them to change their investments as well.In equilibrium, investment is inefficiently short-term.Equilibrium asset-side adjustments by firms can amplify shocks and, while privately optimal, can be socially undesirable.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 18 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.