Credit Information Quality and Corporate Debt Maturity : Theory and Evidence
This paper provides new theoretical and empirical evidence suggesting that the quality of credit information may be a key element in explaining the maturity structure of corporate debt around the world. In markets with poor credit information and h...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/06/7695810/credit-information-quality-corporate-debt-maturity-theory-evidence http://hdl.handle.net/10986/7395 |
| Summary: | This paper provides new theoretical and
empirical evidence suggesting that the quality of credit
information may be a key element in explaining the maturity
structure of corporate debt around the world. In markets
with poor credit information and hence a high degree of
uncertainty about borrower quality, the authors find
suboptimal equilibria in which short-term contracts are
preferred either as a hedge against uncertainty to limit
losses in bad states (in the symmetric information case) or
as a screening device to learn about borrower credit quality
in the course of a repeated lending relationship (in the
asymmetric information case). The results of the model are
supported by the econometric analysis of panel data from
both industrial and developing economies. The authors find
that countries with better quality of credit information
(for example, as a result of improvements in credit
reporting systems or accounting standards) are characterized
by a higher share of long-term debt as a proportion of total
corporate debt ceteris paribus. The findings suggest that
promoting institutions and policies to improve the quality
of credit information is an important prerequisite for
increasing access of firms to long-term finance. |
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