2005•Unpublished venueRequires access
On the Effect of Asymmetric Information upon Enterprise Debt Maturity Choice
Xiong Zheng-de
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Abstract
The firm's debt maturity structure is an important part of financing structure.Based on the analysis of adverse selection and moral hazard of asymmetric information,this article studies the effet of debt maturity on the value of the enterprise.It shows that debt maturity has a signaling function at the occurrence of separating equilibrium under the condition of adverse selection,which is to say,good firms issue short-term debt to signal his quality and bad firms have to choose to issue long-term debt.In addition,it also proves that debt maturity has an important correlation with debt agency cost so that the shortening of debt maturity structure can lower debt agency cost caused by debt maturity and morality risk.