Keywords: Debt maturity, risk, asymmetric information, banks, credit scoring
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.
Full paper (474 KB PDF)
Home | FEDS | List of 2004 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: October 14, 2004