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On the Signalling Role of Debt Maturity

Author

Listed:
  • Lensink Robert

    (University of Groningen)

  • Pham Thi Thu Tra

    (University of Groningen)

Abstract

This paper focuses on the signalling role of debt maturity. The main novelty of the paper is that it analyzes a setting in which high quality firms use collateral as a complementary device along with debt maturity to signal their superiority. Model simulations suggest a non-monotonic relationship between firm quality and debt maturity, in which high quality firms have both long-term secured debt and short-term secured or non-secured debt and low quality firms have long-term unsecured debt. We provide some empirical evidence for this result based on debt contracts of the Asia Commercial Bank.

Suggested Citation

  • Lensink Robert & Pham Thi Thu Tra, 2006. "On the Signalling Role of Debt Maturity," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-32, December.
    • Handle: RePEc:bpj:bejtec:v:topics.6:y:2006:i:1:n:18
    DOI: 10.2202/1534-598X.1286
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