Publication Type
Book Chapter
Version
acceptedVersion
Publication Date
1-2007
Abstract
The traditional equilibrium models of signaling with debt-maturity require transaction costs by firms when raising new capital. In this paper, we propose a new model that has no such requirement. We demonstrate that a separating equilibrium of debt-maturity choice exists under a much more general condition, once accounting for the interactions between borrowers and lenders. The model is able to explain the observed complex financial structure. It is found that callable debt functions much like short-term debt, and serial debt similar to long-term debt. In equilibrium, high-quality firms issue short-term debt, and low-quality firms issue long-term debt.
Keywords
Bond maturity, information asymmetry, signaling, sequential games
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Advances in Quantitative Finance and Accounting
Volume
4
First Page
75
Last Page
96
ISBN
9789812706287
Identifier
10.1142/9789812772824_0004
Publisher
World Scientific
City or Country
Singapore
Citation
WU, Chunchi and LIU, Sheen.
Risky Debt-Maturity Choice under Information Asymmetry. (2007). Advances in Quantitative Finance and Accounting. 4, 75-96.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1574
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1142/9789812772824_0004