TY  - JOUR
AU  - He,Zhiguo
AU  - Xiong,Wei
TI  - Dynamic Debt Runs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15482
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15482
L1  - http://www.nber.org/papers/w15482.pdf
N1  - Author contact info:
Zhiguo He
University of Chicago
Booth School of Business
E-Mail: Zhiguo.He@ChicagoBooth.edu

Wei Xiong
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ  08450
Tel: 609/258-0282
Fax: 609/258-0771
E-Mail: wxiong@princeton.edu
AB  - We develop a dynamic model of debt runs on a firm, which invests in an illiquid asset by rolling over staggered short-term debt contracts. We derive a unique threshold equilibrium, in which creditors coordinate their asynchronous rollover decisions based on the firm's publicly observable and time-varying fundamental. Fear of the firm's future rollover risk motivates each maturing creditor to run ahead of others even when the firm is still solvent. Our model provides implications on the roles played by volatility, illiquidity and debt maturity in driving debt runs, as well as on firms' capital adequacy standards and credit risk.
ER  -