An investigation of cost differences between public sales and private placements of debt

Blackwell, David W.; Kidwell, David S.

doi:10.1016/0304-405x(88)90071-2

Cited by 222 publications

(146 citation statements)

References 21 publications

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“…These findings complement previous empirical results for the issuance of corporate bonds, which showed that scale factors played a role due to legal admistrative and other more fixed costs when issuing public debt (Bhagat andFrost (1986), Smith (1986), Blackwell and Kidwell (1988), Krishnaswami et al (1999), Denis and Mihov (2003) and Esho et al (2001)). …”

Section: Ecb Working Paper Series No 1028supporting

confidence: 89%

“…The flotation costs argument posits that the use of public debt entails substantial issuance costs, including a large fixed-cost component (Blackwell andKidwell (1998) andBhagat andFrost (1986)). …”

Section: Determinants Of Firms' Financing Choicesmentioning

confidence: 99%

“…A higher ratio of short-term to total debt may expose the firm to more intensive scrutiny by potential creditors and a higher bankruptcy risk. Regarding the latter, this result could indicate that firms with a very high level of risk may have to resort to private debt arrangements (Cantillo and Wright (2000), Chemmanur and Fulghieri (1994) and Blackwell and Kidwell (1988)). …”

Section: Information Asymmetries and Choice Of Syndicated Loansmentioning

confidence: 99%

See 2 more Smart Citations

Large debt financing: syndicated loans versus corporate bonds

Altunbaş

Kara

Marqués-Ibáñez

2010

The European Journal of Finance

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Section: Ecb Working Paper Series No 1028supporting

confidence: 89%

Section: Determinants Of Firms' Financing Choicesmentioning

confidence: 99%

Section: Information Asymmetries and Choice Of Syndicated Loansmentioning

confidence: 99%

See 1 more Smart Citation

Large debt financing: syndicated loans versus corporate bonds

Altunbaş

Kara

Marqués-Ibáñez

2010

The European Journal of Finance

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“…On the other hand, corporate bonds, which are mostly public debt and characterized by a dispersed, anonymous ownership structure, are difficult to renegotiate once issued, are associated with sizable issue costs, and have large minimum issue sizes. In particular, Blackwell and Kidwell (1988) and Krishnaswami, Spindt, and Subramaniam (1999) find that issuance costs are larger for public debt than for private debt, which includes bank loans. In addition, Carey et al (1993) find that public debt is cost-effective only above $100 million, while bank debt and non-bank private debt are cost-effective even for smaller issues.…”

Section: Including Private Debt In Granularity Measuresmentioning

confidence: 99%

Granularity of Corporate Debt

2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in CFS Working Paper SeriesThe Center for Financial Studies, located in Goethe University's House of Finance in Frankfurt, is an independent non-profit research center, funded by the non-profit-making organisation Gesellschaft für Kapitalmarktforschung e.V. (GfK). The CFS is financed by donations and by contributions of the GfK members, as well as by national and international research grants. The GfK members comprise major players in Ger-many's financial industry. Established in 1967 and closely affiliated with the University of Frankfurt, it provides a strong link between the financial community and academia. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas.The CFS Working Paper Series presents the result of scientific research on selected topics in the field of money, banking and finance. AbstractWe study to what extent firms spread out their debt maturity dates across time, which we call "granularity of corporate debt." We consider the role of debt granularity using a simple model in which a firm's inability to roll over expiring debt causes inefficiencies, such as costly asset sales or underinvestment. Since multiple small asset sales are less costly than a single large one, firms may diversify debt rollovers across maturity dates. We construct granularity measures using data on corporate bond issuers for the 1991-2011 period and establish a number of novel findings. First, there is substantial variation in granularity in that many firms have either very concentrated or highly dispersed maturity structures. Second, our model's predictions are consistent with observed variation in granularity. Corporate debt maturities are more dispersed for larger and more mature firms, for firms with better investment opportunities, with higher leverage ratios, and with lower levels of current cash flows. We also show that during the recent financial crisis especially firms with valuable investment opportunities implemented more dispersed maturity structures. Finally, granularity plays an important role for bond issuances, because we document that newly issued corporate bond maturities complement pre-existing bond maturity profiles. JEL Classification Numbers: G13, G31, G32, G33.

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“…Diamond (1991) provides another explanation for the preference of larger firms to unmonitored debt: larger firms are on the negatively-sloped section of the demand for monitoring because they have gained better reputations in the market. Also economies of scale in the issuance of public debt favor large firms (Blackwell and Kidwell, 1988). In general, firm size carries a weight in creditrating evaluation, with smaller firms being in a weaker position and, therefore, more likely to stay out of the public-debt market.…”

Section: Control Variablesmentioning

confidence: 99%

Reexamining the Relation between Debt Mix and Growth in Japan

Sercu

Yao

2002

SSRN Journal

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Abstract. We propose a U-shaped relation between the relative weight of bank loans in total corporate debt and the firm's market-to-book ratio-a proxy for expected growth-which reconciles most existing theories. Using data on Japanese firms for 1983-97, we do find that, in the lower range of growth spectrum, firms with better prospects take more bonds in their debt mix: when the firm's prospects improve, the benefits from private debt initially fall relative to its costs. In contrast, in the higher range of growth, firms with more growth potentials take more monitored debt, reflecting, amongst other factors, the higher information and contracting costs of public debt faced by extreme growers. We can explain the seemingly conflicting evidence that Anderson and Makhija (1999) and Hoshi, Kashyap and Scharfstein (1993) provide in this respect. We also find that keiretsu firms do not behave significantly different from non-keiretsu ones, suggesting that keiretsu firms are fairly independent in their financing decisions and that extra costs and benefits from bank loans are either small or in reasonable balance. Firms that faced restrictions in issuing bonds, pre-1990, continue to behave differently from other firms long after the restrictions were lifted.

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An investigation of cost differences between public sales and private placements of debt

Cited by 222 publications

References 21 publications

Large debt financing: syndicated loans versus corporate bonds

Large debt financing: syndicated loans versus corporate bonds

Granularity of Corporate Debt

Reexamining the Relation between Debt Mix and Growth in Japan

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