Corporate finance theories suggest that problems of asymmetric information and moral hazard in credit markets can be addressed by choosing short-term maturities. Theories of debt renegotiation suggest that the credibility of the implicit commitment to not make concessions to insolvent borrowers, which would undermine the effectiveness of short-term maturities, is related to the characteristics of the lender and in particular to its size. the joint implication of these theories is that, for given borrower's characteristics, small banks should be less willing to issue long term, loans. Using information on Italian banks, this study presents a cross-sectional analysis of the maturity of loans to firms and shows a first evidence consistent with this prediction. With more opaque borrowers, like small and innovative firms, other supply-side features (special regulatory regimes favouring lending relationships and economies of scale in the screening technology) are also shown to be relevant in the determination of loan maturity.JEL Codes: G21, G32Keywords: maturity; renegotiation; adverse selection; moral hazard; short-termism
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by Financial Markets Group in its series FMG Discussion Papers with number
dp588.