A Gap-Filling Theory of Corporate Debt Maturity Choice





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    • Greenwood and Stein are at Harvard University and the National Bureau of Economic Research, and Hanson is at Harvard University. We thank Tobias Adrian, Malcolm Baker, Sergey Chernenko, Ken French, Ken Garbade, John Graham (co-editor), Campbell Harvey (editor), Arvind Krishnamurthy, Robert McDonald, Adriano Rampini, Andrei Shleifer, Matt Spiegel, Erik Stafford, Lawrence Summers, Dimitri Vayanos, Luis Viceira, Jeffrey Wurgler, an anonymous referee and associate editor, and seminar participants at the NBER Corporate Finance meeting, Kellogg, Yale School of Management, Brown, the University of North Carolina-Duke Corporate Finance conference, the University of Toronto, the University of British Columbia, and the Federal Reserve Bank of New York for helpful suggestions. We are grateful to Sergey Chernenko and Michael Faulkender for sharing their data on swap activity.


We argue that time variation in the maturity of corporate debt arises because firms behave as macro liquidity providers, absorbing the supply shocks associated with changes in the maturity structure of government debt. We document that when the government funds itself with more short-term debt, firms fill the resulting gap by issuing more long-term debt, and vice versa. This type of liquidity provision is undertaken more aggressively: (1) when the ratio of government debt to total debt is higher and (2) by firms with stronger balance sheets. Our theory sheds new light on market timing phenomena in corporate finance more generally.