Finance Seminar with Daniel Paravisini, London School of Economics
The Department of Finance is proud to announce the upcoming seminar with Daniel Paravisini, London School of Economics.
Daniel Paravisini will present:
Andrew Hertzberg, Columbia University
Andres Liberman, New York University
Daniel Paravisini, London School of Economics
Longer loan maturity provides borrowers with insurance against future changes in the price of credit. The present paper examines whether, consistent with theories of insurance markets with private information, maturity choice leads to adverse selection. Our estimation compares two groups of observationally equivalent borrowers that took identical unsecured 36-month loans, only one of which had also a 60-month maturity choice available. We ﬁnd that when long maturity is available, fewer borrowers take the short-term loan, and those that do, default less. Additional ﬁndings suggest borrowers self-select on private information about their future ability to repay. The ﬁndings imply that maturity can be used to screen borrowers on this private information.