Journal of Finance Vol. 60 No. 6 2005

Debt Maturity, Risk, and Asymmetric Information

Allen N. Berger^1,2; Marco A. Espinosa-Vega^1,3; W. Scott Frame^1,4; Nathan Miller^5,6

¹ Conference Board · ² University of South Carolina · ³ International Monetary Fund · ⁴ Federal Reserve Bank of Dallas · ⁵ Federal Reserve · ⁶ Georgetown University

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.

DOI

10.1111/j.1540-6261.2005.00820.x

Volume

60

Issue

6

Pages

2895-2923

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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