Abstract
Short‐term corporate debt as a proportion of total debt issued by public firms varies greatly across countries, between 28% in the United States and 78% in China. This paper argues that the interaction between information asymmetry and legal protection of creditors is an important determinant of debt maturity. When short‐term debt plays a dual role as signaling and commitment devices, a reduction in information asymmetry has a larger impact on debt maturity when creditor rights are weaker. We find empirical support for this prediction using firm‐level data from 45 countries around the world.
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