Abstract
When firms roll over bonds of different maturity, their debt-maturity structure can feature both shorter and longer maturity in bad times. We link these debt-maturity patterns to the firms' fundamentals, assuming earnings are deterministically declining but the same firm is subject to a growth option. Larger growth options induce equilibria in which the fraction of outstanding short-term debt falls in bad times---resulting in a procyclical rollover policy---whereby firms engineer later default via longer maturity. By contrast, the fraction of newly issued short-term debt is (weakly) procyclical in all paths. That is, more short-term debt is issued in good than in bad times.
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