Finance Seminar（2014-14）

Topic:Refinancing Risk, Risk Shifting, and Lines of Credit: An Empirical Analysis

Speaker:Bo Li, Tsinghua University

Time:Wednesday, 28 May, 10:00-11:30

Location:Room 217, Guanghua Building 2

Abstract：This paper identifies a channel (the long-term debt maturity structure) through which external financing conditions affect firm risk. I provide empirical evidence of shareholders' risk-shifting behavior by exploiting the ex-ante heterogeneity of long-term debt maturity structure. The first hypothesis, which examines the relationship between financial frictions and shareholders' incentive to take risky investment, demonstrates that: (i) firms with large amounts of long-term debt due in one year experience substantial increases in unsystematic risk and total risk, which is associated with higher R&D intensity and lower capital expenditure. The second hypothesis, which studies the effectiveness of lines of credit in mitigating rollover risk, indicates that: (ii) lines of credit lower firm risk and the probability of default. This paper highlight the importance of lines of credit for firm risk and the agency conicts between creditors and shareholders.