We propose a model that explains the build-up of short term debt when the creditors are strategic and have different beliefs about the prospects of the borrowers' fundamentals. We define a dynamic game among creditors, whose outcome is the short term debt process as a function of the borrower's...

This paper explores, in a multi-period setting, the funding liquidity of a borrower that finances its operations through short term debt. The short term debt is provided by a continuum of agents with heterogeneous beliefs about the prospects of the borrower. In each period, creditors observe the...

We analyze debt issuance in the continuous time limit and when the issuer's asset is subject to downward jump risk. We find the debt capacity in equilibrium and an illiquidity barrier. When the asset-to-debt ratio is above the barrier the issuer is liquid, whereas below the barrier it can no...