Is Debt Maturity Determined by Asymmetric Information About Short-Term or Long-Term Earnings?

Abstract

This paper empirically examines the effect of asymmetric information between managers and lenders on debt maturity structure of firms. The measures of short and long-term asymmetric information are derived from the dispersion of analysts' earnings forecasts. Short-term information asymmetry positively affects debt maturity. We find no relation between long-term asymmetric information and debt maturity. Goswami, Noe and Rebello (1995) suggest that optimal debt maturity structure depends on the term structure of asymmetric information. Our results provide no support for this model. Next, we focus on short-term asymmetric information. The findings imply that firms with both good news and high short-term asymmetric information rely significantly more on short-term debt. Further, a higher proportion of collateral in informational problematic firms leads to higher debt maturity. The maturity matching is strongly supported.

Keywords: Analysts' forecasts, Asymmetric information, Debt maturity

JEL Classification: G3, G32