Loan versus Bond Financing of Czech Companies and the influence of the Global Recession

Abstract

European economies are traditionally considered to be bank based regarding the debt financing. However, in times of crises in the bank sector, this feature may indicate a weakness of these economies when the credit squeeze phenomenon may occur and companies' competitiveness might be negatively affected thanks to unstable financing possibilities. In such conditions, a shift from bank loans to bonds might be expected. That is why this paper focuses on mutual development of corporate bond and business loan markets in the developing Czech economy in the years 2006-2014 with regard to the impacts of the global financial crisis of 2008/2009. The main goal of this article is to identify whether, thanks to the impacts of the global recession in 2009, there was a shift in Czech economy in business financing from the loans to bonds in a similar fashion as in the case of East Asian economies after their financial crisis in the nineties. Since Czech companies practically do not use short-term bonds, a mutual relationship is examined between amounts of long-term corporate bonds and economic development captured by the GDP per capita, and between long-term business loans and development of long-term corporate bonds. The main findings of this study are that since the global financial crisis, bond financing of businesses has been growing faster than loan financing. Czech economy thus shifts and becomes more bond market-based. The development of bond financing is positively correlated with the GDP per capita. Time series of both loans and bonds develop along the same trend. However, residual components are correlated negatively, which confirms the standing of loans and bonds as substitutes. Two main practical implications may be derived from this study. First, a growing usage of bonds increases demands on the market regulator, especially in the field of monitoring. Second, the growing bond market leads to the increased effectiveness, which makes additional effective sources of finance available to businesses and makes Czech economy more competitive even in times of difficulties in the banking sector.

Gold Investment Incentives: An Empirical Identification of the Main Gold Price Determinants and Prognostication of Gold Price Future Trends

“…Over the last few decades, global finance markets have gone through a number of financial crises, the most devastating of which include Mexican peso crisis in 1994, Asian flu in 1997, Russian crisis in 1998, Brazilian crisis in 1999, Argentinian crisis in 2001-2002, the USA financial crisis in 2007 and Greek crisis in 2009. The periods of financial contagion have evidently raised the risk of securities (Vychytilova, 2018;Mačí & Valentová Hovorková, 2017; Čulková et al, 2015;Vukovic et al, 2017) and returned the interest in gold as in alternative financial instrument since gold has historically been treated as a standard of high value. Of course, other alternative investments should be mentioned here too (Jurevičienė, & Jakanovytė, 2015;Nuhiu et al, 2017;Mouselli et al, 2016;Śliwiński & Łobza, 2017;Nawrocki, 2018).…”

Financial Companies in Latvia: Why are they Coming to the Bond Market?

“…There is vast academic interest in the methods and effectiveness of corporate financing, where the research could be grouped in to two categories: exploring the market-based financing (research conducted after the financial crisis of 2008-2013): Mertens & Thiemann (2018), Gupta & Gregoriou (2018), Karwowski & Stockhammer (2017), Maci & Valentova Hovorkova (2017), Hardie et al (2013); and narrowing the subject of the analysis to the corporate choice between the market and bank-based funding decision (the research conducted before the financial crisis of 2008-2013): Levine (2002), Fujita (2000), Allen & Gale (2000), Boyd & Smith (1998), Rajan & Zingales (1999), Boot & Thakor (1997), Gerschenkron (1962). The further division and analysis of the factors as affecting the market-based funding decision of the company luck the consistency and major interest in the academic studies.…”

“…Corporations come to the bond market to address their financing needs where long-term oriented and cost-effective financing forms the continuity of the company and builds its competitiveness in the market. The academic literature provides broad motivation for corporate debt issuing, where Maci & Valentova Hovorkova (2017) named the riskiness of businesses and costs of moni¬toring Literature Reviews for the creditor, the accessibility of loan ratings of businesses, the overall eco¬nomic maturity of the country, the size, or phases, of life cycles of businesses, the communica¬tion of businesses with the investor community, the terms of the loan contract factors. Tocelovska (2008) revealed that efficient competition to bank funding, long-term financing, improvement of the cash flow by decreasing the cost of debt, optimisation of the financial structure, and efficient ownership structure among the main factors.…”

The factors driving the synergy value in mergers of mechanical engineering companies in the Czech Republic

“…The companies using debt financing of the transaction may reduce their tax base by increasing the share of debt financing (see Huyghebaert & Luypaert, 2010). Because financing companies through bank loans is more common in the Czech Republic than through issuing bonds, the bank loans to assets ratio was analysed (see, for example, Mačí & Valentová Hovorková, 2017).…”