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Firms’ financing choice between short-term and long-term debts: Are they substitutes?

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When selecting debt to finance their operations and investments, companies face crucial decisions regarding the appropriate types of debt. Despite the classic Modigliani–Miller (1958) capital structure irrelevance result, real-world market frictions can significantly impact a firm's capital structure decisions. This reality means that one debt type is not a perfect substitute for another, due to differences in important factors including maturity structures, funding purposes, rollover risks, and funding costs.

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  • Samuel J. Hempel & Yi Li & Sean Tibay, 2024. "Firms’ financing choice between short-term and long-term debts: Are they substitutes?," FEDS Notes 2024-05-03-1, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfn:2024-05-03-1
    DOI: 10.17016/2380-7172.3438
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