Information Asymmetry, Risk Rating, and Debt Maturity: Evidence from Small Business Data
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This paper examines the interactive effects of risk ratings and banking relationships on debt maturity choice. Previous studies posit that there exist important interactions between risk ratings and proprietary information generated from monitoring. I test their predictions by introducing banking relationships as a proxy for proprietary information about borrowers. I find that, in the absence of prior banking relationships, both low-and high-risk firms borrow on shorter-term bases than intermediate-risk firms. With long-lasting banking relationships, however, the effects of risk ratings on maturity substantially decline. The findings here suggest that information asymmetry is at the root of debt maturity choice.
Abstract
This paper examines the interactive effects of risk ratings and banking relationships on debt maturity choice. Previous studies posit that there exist important interactions between risk ratings and proprietary information generated from monitoring. I test their predictions by introducing banking relationships as a proxy for proprietary information about borrowers. I find that, in the absence of prior banking relationships, both low-and high-risk firms borrow on shorter-term bases than intermediate-risk firms. With long-lasting banking relationships, however, the effects of risk ratings on maturity substantially decline. The findings here suggest that information asymmetry is at the root of debt maturity choice.
참고문헌 (19)
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