The maturity rat race

Markus K. Brunnermeier, Martin Oehmke

Research output: Contribution to journalArticlepeer-review

136 Scopus citations


Why do some firms, especially financial institutions, finance themselves so short-term? We show that extreme reliance on short-term financing may be the outcome of a maturity rat race: a borrower may have an incentive to shorten the maturity of an individual creditor's debt contract because this dilutes other creditors. In response, other creditors opt for shorter maturity contracts as well. This dynamic toward short maturities is present whenever interim information is mostly about the probability of default rather than the recovery in default. For borrowers that cannot commit to a maturity structure, equilibrium financing is inefficiently short-term.

Original languageEnglish (US)
Pages (from-to)483-521
Number of pages39
JournalJournal of Finance
Issue number2
StatePublished - Apr 2013

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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