IMF Working Papers

Debt Maturity, Risk, and Asymmetric Information

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

October 1, 2005

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Marco A Espinosa-Vega, Allen N. Berger, Nathan H. Miller, and W. Scott Frame "Debt Maturity, Risk, and Asymmetric Information", IMF Working Papers 2005, 201 (2005), accessed April 11, 2025, https://doi.org/10.5089/9781451862201.001

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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.

Subject: Bank credit, Banking, Credit, Loans, Small and medium enterprises

Keywords: Debt maturity structure, Risk rating, Short-term debt, Small business, WP

Publication Details

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