On the Signalling Role of Debt Maturity

Robert Lensink and Thi Thu Tra Pham

The B.E. Journal of Theoretical Economics, 2006, vol. 6, issue 1, 32

Abstract: This paper focuses on the signalling role of debt maturity. The main novelty of the paper is that it analyzes a setting in which high quality firms use collateral as a complementary device along with debt maturity to signal their superiority. Model simulations suggest a non-monotonic relationship between firm quality and debt maturity, in which high quality firms have both long-term secured debt and short-term secured or non-secured debt and low quality firms have long-term unsecured debt. We provide some empirical evidence for this result based on debt contracts of the Asia Commercial Bank.

Keywords: debt maturity; asymmetric information; signalling; collateral (search for similar items in EconPapers)
Date: 2006
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DOI: 10.2202/1534-598X.1286

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