Risk aversion and debt maturity structure
Jorge Fernández-Ruiz and
Blanca Cecilia García Medina
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Blanca Cecilia García Medina: El Colegio de México
Economía Mexicana NUEVA ÉPOCA, 2003, vol. XII, issue 2, 275-291
We study the relationship of risk aversion and debt maturity structure. In a model in which adverse selection in financial markets creates a role for the use of short-term debt, we allow the possibility of borrowers being risk-averse. This creates a trade-off between reduced expected financing costs and higher risk and allows for the study of the effect of risk aversion on optimal maturity structure. We prove that, as risk aversion increases, so does the percentage of debt that is long-term.
Keywords: risk aversion; debt maturity structure; adverse selection. (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:emc:ecomex:v:12:y:2003:i:2:p:275-291
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