Debt Maturity, Risk, and Asymmetric Information

41 Pages Posted: 30 Jun 2009

See all articles by Marco A. Espinosa-Vega

Marco A. Espinosa-Vega

International Monetary Fund (IMF)

Allen N. Berger

University of South Carolina - Darla Moore School of Business

W. Scott Frame

Federal Reserve Bank of Dallas

Nathan H. Miller

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

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, Risk premium, Banks, Credit, Economic models

Suggested Citation

Espinosa-Vega, Marco A. and Berger, Allen N. and Frame, W. Scott and Miller, Nathan H., Debt Maturity, Risk, and Asymmetric Information (October 2005). IMF Working Paper No. 05/201, Available at SSRN: https://ssrn.com/abstract=1426444

Marco A. Espinosa-Vega (Contact Author)

International Monetary Fund (IMF) ( email )

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Allen N. Berger

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

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W. Scott Frame

Federal Reserve Bank of Dallas ( email )

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United States
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Nathan H. Miller

affiliation not provided to SSRN

No Address Available

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