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Risk aversion and debt maturity structure

Author

Listed:
  • Jorge Fernández Ruiz

    (El Colegio de México)

  • Blanca Cecilia García Medina

    (El Colegio de México)

Abstract

We study the relationship of risk aversion and debt maturity structure. In a model in which adverse selection in financial markets creates a role for the use of short-term debt, we allow the possibility of borrowers being risk-averse. This creates a trade-off between reduced expected financing costs and higher risk and allows for the study of the effect of risk aversion on optimal maturity structure. We prove that, as risk aversion increases, so does the percentage of debt that is long-term.

Suggested Citation

  • Jorge Fernández Ruiz & Blanca Cecilia García Medina, 2003. "Risk aversion and debt maturity structure," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 275-291, July-Dece.
  • Handle: RePEc:emc:ecomex:v:12:y:2003:i:2:p:275-291
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