Collateral and Debt Maturity Choice. A Signaling Model
This 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.
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- Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001.
"An Introduction to the Economics of Information: Incentives and Contracts,"
Oxford University Press,
edition 2, number 9780199243259, March.
- Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273, March.
- 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 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 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, vol. 17(1), pages 84-95, February.
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