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Information Asymmetry, Risk Rating, and Debt Maturity: Evidence from Small Business Data

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Authors
Han, JoongHo
Issue Date
2008
Publisher
College of Business Administration (경영대학)
Citation
Seoul Journal of Business Vol14(2): 47~66(2008)
Keywords
debt maturity; information asymmetry; risk rating; banking relationship
Abstract
This paper examines the interactive effects of risk ratings and banking
relationships on debt maturity choice. Previous studies posit that there
exist important interactions between risk ratings and proprietary
information generated from monitoring. I test their predictions by
introducing banking relationships as a proxy for proprietary information
about borrowers. I find that, in the absence of prior banking
relationships, both low-and high-risk firms borrow on shorter-term
bases than intermediate-risk firms. With long-lasting banking
relationships, however, the effects of risk ratings on maturity
substantially decline. The findings here suggest that information
asymmetry is at the root of debt maturity choice.
ISSN
1226-9816
Language
English
URI
http://hdl.handle.net/10371/1793
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College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Seoul Journal of BusinessSeoul Journal of Business Volume 14, Number 1/2 (2008)
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