Collateral and Debt Maturity Choice. A Signaling Model
AbstractThis paper derives optimal loan policies under asymmetric information where banks offer loan contracts of long and short duration, backed or unbacked with collateral. 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. The least-cost signaling equilibrium depends on the relative costs of the signaling devices, the difference in firm quality and the proportion of good firms in the market. 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 05E08.
Date of creation: 2005
Date of revision:
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001.
"An Introduction to the Economics of Information: Incentives and Contracts,"
OUP Catalogue, Oxford University Press,
Oxford University Press,
edition 2, number 9780199243259, October.
- Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780199243273, October.
- Hernán Ortiz-Molina & María Penas, 2008.
"Lending to small businesses: the role of loan maturity in addressing information problems,"
Small Business Economics,
Springer, vol. 30(4), pages 361-383, April.
- Ortiz-Molina, H. & Penas, M.F., 2004. "Lending to Small Businesses: The Role of Loan Maturity in Adressing Information Problems," Discussion Paper, Tilburg University, Center for Economic Research 2004-99, Tilburg University, Center for Economic Research.
- Marco A Espinosa-Vega & Allen N. Berger & Nathan H. Miller & W. Scott Frame, 2005.
"Debt Maturity, Risk, and Asymmetric Information,"
IMF Working Papers
05/201, International Monetary Fund.
- Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2004. "Debt maturity, risk, and asymmetric information," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-60, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2004. "Debt maturity, risk, and asymmetric information," Working Paper, Federal Reserve Bank of Atlanta 2004-32, Federal Reserve Bank of Atlanta.
- Coco, G., 1998.
"On the Use of Collateral,"
9805, Exeter University, Department of Economics.
- Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(1), pages 84-95, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joke Bulthuis).
If references are entirely missing, you can add them using this form.