On the signalling property of debt maturity: empirical evidence from a private bank in Vietnam

Robert Lensink and Thi Thu Tra Pham

Applied Economics Letters, 2011, vol. 18, issue 9, 809-816

Abstract: This article provides new empirical evidence for the relevance of the signalling view on debt maturity, using data from a private bank in Vietnam. More specifically, we test the empirical predictions of the two main signalling models on debt maturity, that is, the models by Flannery (1986) and Diamond (1991), and compare this with the debt covenant view. The results of our regressions provide strong evidence for a downward-sloping effect of firm quality on maturity, which is in line with the signalling model of Flannery (1986), and contradict the debt covenant view. Our empirical analysis does not support the model by Diamond (1991).

Date: 2011
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DOI: 10.1080/13504851.2010.507167

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