Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets

Abstract

In this paper, we focus on the surprising phenomenon in which rms face diculty issuing in domestic currency even in the home market, especially in emerging markets.Could this be due to original sin which has been familiar to sovereign bond issuance?In its new incarnation, original sin refers to the diculty rms in many emerging markets have in borrowing domestically long-term, even in the local currency. We infer the nature of original sin from 5,901 nancing decisions by rms in seven Asian emerging markets over a period of 20 years. Our sample period covers an episode when bond issuers had a choice between a less developed but growing onshore market, which varied across countries in the level of development, and a deep and liquid oshore market. We nd that even in countries with onshore markets, it is often easier for unseasoned rms to issue oshore (in foreign currency) than to issue onshore, but changes in market development reverses this eect. In addition, once such a rm becomes a seasoned issuer, it is absolved from domestic original sin and is then able to act opportunistically and go to the market favored by interest dierentials.