Working Paper: NBER ID: w31764
Authors: Anthony A. Defusco; Charles G. Nathanson; Michael Reher
Abstract: 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.
Keywords: debt rollover; crisis management; commercial real estate; hotel operations; debt overhang
JEL Codes: G01; G3; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| debt maturity timing (G32) | operational adjustments (L23) |
| debt maturity timing (G32) | operating performance (L25) |
| debt overhang (H63) | operational adjustments (L23) |
| loan-to-value (LTV) distribution (G51) | performance drop (D29) |
| debt rollover (H63) | operational scaling down (C59) |