Credit Information Quality and Corporate Debt Maturity: Theory and Evidence

43 Pages Posted: 20 Apr 2016

See all articles by Marco Sorge

Marco Sorge

World Bank Group - International Finance Corporation

Chendi Zhang

University of Warwick - Finance Group

Date Written: June 1, 2007

Abstract

This paper provides new theoretical and empirical evidence suggesting that the quality of credit information may be a key element in explaining the maturity structure of corporate debt around the world. In markets with poor credit information and hence a high degree of uncertainty about borrower quality, the authors find suboptimal equilibria in which short-term contracts are preferred either as a hedge against uncertainty to limit losses in bad states (in the symmetric information case) or as a screening device to learn about borrower credit quality in the course of a repeated lending relationship (in the asymmetric information case). The results of the model are supported by the econometric analysis of panel data from both industrial and developing economies. The authors find that countries with better quality of credit information (for example, as a result of improvements in credit reporting systems or accounting standards) are characterized by a higher share of long-term debt as a proportion of total corporate debt ceteris paribus. The findings suggest that promoting institutions and policies to improve the quality of credit information is an important prerequisite for increasing access of firms to long-term finance.

Keywords: Banks & Banking Reform, Financial Intermediation, Economic Theory & Research, Insurance & Risk Mitigation, Financial Crisis Management & Restructuring

Suggested Citation

Sorge, Marco and Zhang, Chendi, Credit Information Quality and Corporate Debt Maturity: Theory and Evidence (June 1, 2007). World Bank Policy Research Working Paper No. 4239. Available at SSRN: https://ssrn.com/abstract=991431

Marco Sorge

World Bank Group - International Finance Corporation ( email )

2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States

Chendi Zhang (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

Register to save articles to
your library

Register

Paper statistics

Downloads
341
rank
86,061
Abstract Views
1,157
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information