Real Effects of Rollover Risk: Evidence from Hotels in Crisis

We show how firms scheduled to roll over debt in a crisis strategically reduce operations, regardless of their liquidity constraints. Our research design utilizes contractual features of commercial mortgages that generate as-good-as-random variation in whether debt is scheduled to mature during a cr...

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Bibliographic Details
Published in:NBER Working Paper Series 2023-10
Main Authors: DeFusco, Anthony A, Nathanson, Charles G, Reher, Michael
Format: Article
Language:English
Subjects:
Economic theory
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Summary:We show how firms scheduled to roll over debt in a crisis strategically reduce operations, regardless of their liquidity constraints. Our research design utilizes contractual features of commercial mortgages that generate as-good-as-random variation in whether debt is scheduled to mature during a crisis or just before. Once the crisis begins, borrowers cut labor expenses and produce less output at properties collateralizing loans coming due during the crisis, especially high-leverage loans. These effects hold with owner fixed-effects, consistent with strategic default and not liquidity constraints as the dominant mechanism. A parsimonious model of debt overhang with rollover risk rationalizes these results.
ISSN:0898-2937
DOI:10.3386/w31764