Collateral And The Debt Maturity Choice Under Asymmetric Information
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| Author | : Robert Lensink |
| Publisher | : |
| Total Pages | : 36 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
This paper analyzes the choice of signaling mechanisms by firms in a loan arrangement with banks. In a world of asymmetric information, firms have several debt instruments and hence can use them simultaneously to self-select. It is shown that different separating equilibria may result for self-selection. If separation occurs, low-quality firms will always borrow long-term debt without collateral, while high-quality firms will borrow long-term debt with collateral or borrow short-term debt with or without collateral. The optimal loan policy depends on the relative signaling costs of the different signaling mechanisms. Separation will be more likely if the proportion of low-quality firms in the market is higher.
| Author | : |
| Publisher | : |
| Total Pages | : 64 |
| Release | : 2004 |
| Genre | : Banks and banking |
| ISBN | : |
"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"--Abstract.
| Author | : Allen N. Berger |
| Publisher | : |
| Total Pages | : 41 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
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.
| Author | : David Abad |
| Publisher | : |
| Total Pages | : 25 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
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.
| Author | : Gautam Goswami |
| Publisher | : |
| Total Pages | : |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
The existing research on debt-maturity under asymmetric information has focused on the impact of differential information regarding asset quality on the debt maturity decision. This research has generally indicated the optimality of short-term debt financing as a vehicle of mitigating the adverse selection problem. In this paper, we consider the impact of information asymmetry regarding the maturity structure of cash flows on the debt maturity decision. We demonstrate that, in this context, long-term debt is generally the form of debt financing most effective in alleviating the adverse selection problem. We also show that costs of adverse selection may induce some mismatching of debt maturity and asset maturity in the presence of significant transaction costs.
| Author | : Diego J. Perez |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
| Author | : Vidhan K. Goyal |
| Publisher | : |
| Total Pages | : 66 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Asymmetric information models suggest that a borrower's choice of debt maturity depends on its private information about its default probabilities, i.e., borrowers with favorable information prefer short-term debt while those with unfavorable information prefer long-term debt. We test this implication by tracing the evolution of debt issuers' default risk following debt issuances. We find that short-term debt issuance leads to a decline in borrowers' asset volatility and an increase in their distance-to-default. The opposite is true for long-term debt issues. The results suggest that borrowers' private information about their default risk is an important determinant of their debt maturity choices.
| Author | : Anton Miglo |
| Publisher | : |
| Total Pages | : 27 |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
Existing literature studies the effect of asymmetric information on many aspects of debt financing including debt maturity and seniority, collateral, liquidation rights, convertible debt, income bonds and sinking funds. Less is known about the effect of asymmetric information on firms' incentives to issue non-recourse debt (project financing). This paper is intended to shed new light on this issue. We analyze the choice between project financing and corporate financing when a firm's insiders have private information about the qualities of the firm's investment projects. Different informational structures and the resulting equilibria are considered. Empirical implications including new testable predictions are discussed.
| Author | : Gautam Goswami |
| Publisher | : |
| Total Pages | : 306 |
| Release | : 1992 |
| Genre | : Corporate debt |
| ISBN | : |
| Author | : Lewis Gaul |
| Publisher | : CreateSpace |
| Total Pages | : 32 |
| Release | : 2015-01-01 |
| Genre | : |
| ISBN | : 9781505310306 |
In credit markets, asymmetric information problems arise when borrowers have private information about their creditworthiness that is not observable by lenders. If these informational asymmetries do not negatively affect lenders' profitability, then they are irrelevant to lenders.
