Debt Maturity, Risk, and Asymmetric Information

41 Pages Posted: 24 Aug 2004

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Marco A. Espinosa-Vega

International Monetary Fund (IMF)

W. Scott Frame

Federal Reserve Bank of Dallas

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 2004

Abstract

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.

Keywords: Debt maturity, risk, asymmetric information, banks, credit scoring

JEL Classification: G32, G38, G21

Suggested Citation

Berger, Allen N. and Espinosa-Vega, Marco A. and Frame, W. Scott and Miller, Nathan, Debt Maturity, Risk, and Asymmetric Information (August 2004). Available at SSRN: https://ssrn.com/abstract=580962 or http://dx.doi.org/10.2139/ssrn.580962

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

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Wharton Financial Institutions Center

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European Banking Center

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Marco A. Espinosa-Vega

International Monetary Fund (IMF) ( email )

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202-623-4311 (Fax)

W. Scott Frame

Federal Reserve Bank of Dallas ( email )

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Dallas, TX 75201
United States
214-922-6984 (Phone)

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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