Is the Impact of the Rollover Risk on the Default Risk Affected by the Financing Sources?

Abstract

We study the effect of rollover risk on the risk of default using a comprehensive database of U.S. industrial firms during 1986–2013 This article is the most thoroughgoing empirical research to date to support the existence of a rollover risk effect on the risk of default. A one standard deviation increase in the rollover risk variable leads to a 3.3% increase in default rates. We present evidence revealing the extent to which bank financing dependence affects the influence of rollover risk on default risk. Firms that depend on bank financing suffer the strongest rollover risk, especially during crisis in the credit market, and if they experience declining profitability and are of poor credit quality.