Debt Maturity, Risk, and Asymmetric Information

Author/Editor:

Marco A Espinosa-Vega ; Allen N. Berger ; Nathan H. Miller ; W. Scott Frame

Publication Date:

October 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We test the implications of Flannery's (1986) and Diamond's (1991) models concerning the effects of risk and asymmetric information in determining debt maturity, and we examine the overall importance of informational asymmetries in debt maturity choices. We employ data on over 6,000 commercial loans from 53 large U.S. banks. Our results for low-risk firms are consistent with the predictions of both theoretical models, but our findings for high-risk firms conflict with the predictions of Diamond's model and with much of the empirical literature. Our findings also suggest a strong quantitative role for asymmetric information in explaining debt maturity.

Series:

Working Paper No. 2005/201

Subject:

Bank credit Banking Credit Loans Small and medium enterprises

English

Publication Date:

October 1, 2005

ISBN/ISSN:

9781451862201/1018-5941

Stock No:

WPIEA2005201

Pages:

41

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