Author : Marco Sorge
Release : 2007
Genre : Access to Finance
Kind : eBook
Book Rating : /5 ( reviews)

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Book Synopsis Credit Information Quality and Corporate Debt Maturity by : Marco Sorge

Download or read book Credit Information Quality and Corporate Debt Maturity written by Marco Sorge. This book was released on 2007. Available in PDF, EPUB and Kindle. Book excerpt: 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.