The Short-Term Debt Choice Under Asymmetric Information

SERIEs - Journal of the Spanish Economic Association, 8 (3), 261-285, 2017

25 Pages Posted: 7 Sep 2017 Last revised: 16 Oct 2017

See all articles by David Abad

David Abad

Universidad de Alicante

Juan P. Sánchez-Ballesta

University of Murcia

José Yagüe

University of Murcia

Date Written: September 1, 2017

Abstract

This paper investigates whether the market level of information asymmetry affects firms’ debt financing decisions. Using a sample of non-financial listed firms and a composite index based on microstructure measures of information asymmetry, we find that firms with more information asymmetry use shorter debt maturities. In addition, we find that these firms face more difficulties to access public debt and bank debt (particularly, short-term bank debt), and they have to rely on trade credit as an alternative source of short-term financing. Analyzing the associations in two subsamples based on firm size, we find that our results essentially driven by smaller companies, which are those affected by higher information asymmetries. Our findings support the information asymmetry theories of trade credit: as information asymmetry increases and, consequently, listed firms face more constraints in the credit markets, they increase the use of financing provided by their suppliers.

Keywords: Information asymmetry, Market microstructure, Short-term debt, Bank debt, Accounts payable, Trade credit

JEL Classification: G14, G32

Suggested Citation

Abad, David and Sánchez-Ballesta, Juan P. and Yagüe, José, The Short-Term Debt Choice Under Asymmetric Information (September 1, 2017). SERIEs - Journal of the Spanish Economic Association, 8 (3), 261-285, 2017, Available at SSRN: https://ssrn.com/abstract=3031794

David Abad

Universidad de Alicante ( email )

Campus de San Vicente
Carretera San Vicente del Raspeig
San Vicente del Raspeig, 03690
Spain

Juan P. Sánchez-Ballesta

University of Murcia ( email )

Avda Teniente Flomesta, 5
Murcia, Murcia 30100
Spain

José Yagüe (Contact Author)

University of Murcia ( email )

Department of Management and Finance
Campus de Espinardo s/n
Murcia, 30100
Spain
+34 868883862 (Phone)
+34 868887537 (Fax)

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