@article {31781,
	title = {Spillover Effects between Liquidity Risks through Endogenous Debt Maturity},
	journal = {Journal of Financial Markets},
	volume = {64},
	year = {2023},
	pages = {100814},
	abstract = {We construct a model of debt maturity structure and show how a firm trades off between\&nbsp;the costs of market liquidity risk and rollover risk. On one hand, the issuance of long-term debt\&nbsp;reduces market liquidity because it increases the supply in the secondary debt market, which\&nbsp;increases the cost the firm bears for long-term debt (i.e., the cost of market liquidity risk).\&nbsp;On the other hand, the use of short-term debt increases the likelihood of early liquidation,\&nbsp;which raises the cost of short-term debt for the firm (i.e., the cost of rollover risk). We\&nbsp;show that market liquidity risk and rollover risk the firm is exposed to are connected through\&nbsp;endogenously determined debt maturity structure. An exogenous shock (e.g., shrinkage of\&nbsp;market depth or an increase in risk-free interest rate) that directly increases one type of\&nbsp;liquidity risk would induce the firm to alter debt maturity structure and partially offset the\&nbsp;impact of the shock by raising its exposure to the other type of risk (i.e., spillover effects\&nbsp;exist). We also show that the spillover from market liquidity risk (rollover risk) to rollover risk\&nbsp;(market liquidity risk) is more (less) pronounced during economic recessions or in the case of\&nbsp;competitive firms.},
	url = {https://www.sciencedirect.com/science/article/pii/S1386418123000125},
	author = {Xu Wei and Xiao Xiao and Yi Zhou and Yimin Zhou}
}
