The decision to first enter the public bond market: The role of firm reputation, funding choices, and bank relationships

Hale, Galina; Santos, João A. C.

doi:10.1016/j.jbankfin.2007.12.016

Cited by 109 publications

(94 citation statements)

References 46 publications

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“…Low liquidity indicates both the need to raise funds on the demand side, and a signal of low creditworthiness, deterring creditors from offering finance on the supply side. Hale and Santos (2008) find that firms with more liquidity take longer to enter the public bond market due to the fact that they have substantial internal funds, which confirms the findings of Guariglia et al (2011) for firms in China. Liquidity is also used by Mateut et al (2006) to determine whether firms resort to bank finance.…”

Section: Influences On the Bond Market Participation Decisionsupporting

confidence: 78%

“…Moreover, bond issuers have higher average growth rates (10.9% versus 7.4%). Dennis and Mihov (2003) and Hale and Santos (2008) indicate that larger firms typically have more public debt and Datta et al (2000) find that the likelihood of bond issues is increasing in the firm's size and the need for external 8 We used ISIN codes in order to link bond-specific data from Bloomberg with accounting data from Thomson Financial. In addition, the matching of the bond data from Bondware with data from Thomson Financial was made feasible using firms' names.…”

Section: Descriptive Analysismentioning

confidence: 99%

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What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia

Mizen

Tsoukas

2013

Oxford Economic Papers

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This paper investigates bond market development in Asia by exploring the determinants of firms' decisions to issue public debt in a range of Asian economies. Using a novel database covering the period 1995 to 2007, we use comparable micro level panel of nine countries-China, Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand-to explore factors that promote bond issuance by firms. We control for firm characteristics and market features such as bond market depth and liquidity; we also consider supra-national policy initiatives to improve bond market function. Our paper demonstrates that regional initiatives have been an important step towards greater bond issuance by firms in Asia, mostly by fostering market deepening and improving liquidity.JEL classifications: E22, F32, G32.

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Section: Influences On the Bond Market Participation Decisionsupporting

confidence: 78%

Section: Descriptive Analysismentioning

confidence: 99%

What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia

Mizen

Tsoukas

2013

Oxford Economic Papers

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“…This matches a well-known stylized fact: small firms rely exclusively on banks and larger firms are more likely to issue bonds (Hale andSantos 2002, andPetersen andRajan 1994). Also, older firms are more likely to use bonds (Johnson 1997, andRajan 1992).…”

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confidence: 79%

Insolvency Resolution and the Missing High Yield Bond Markets

Becker

Josephson

2013

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In many countries, bankruptcy is associated with low recovery by creditors. We develop a model of corporate credit markets in such an environment. Corporate credit is provided by either a bond market or risk-averse banks. Restructuring of insolvent firms happens out of court if in-court bankruptcy is inefficient, giving banks an advantage over bondholders. Riskier borrowers will use bank loans anywhere, but also bonds when bankruptcy is efficient. The model matches empirical debt mix patterns better than fixed-issuance-cost models. Across systems, efficient bankruptcy should be associated with more bond issuance by high-risk borrowers. This effect is small or absent for safe firms. We find that both predictions hold both cross-country and using insolvency reforms as natural experiments. Our empirical estimates suggest that a one-standard-deviation increase in the efficiency of bankruptcy is associated with an increase in the stock of corporate bonds equal to 5% of firm assets. This is equivalent to two thirds of the difference between the US and other countries. Most external financing to corporations is debt, i.e. financing with a fixed horizon and a predetermined repayment schedule. Among the dimensions in which corporate debt contracts vary, such as maturity and seniority, one stands out as particularly salient: the difference between intermediated debt (such as bank loans) and non-intermediated debt (bonds and commercial paper). Bank loans are associated with more screening, monitoring and intervention, but are held in much more concentrated fashion (Diamond 1991). Corporations use both loans and bonds in large amounts, and individual firms often use both simultaneously, showing willingness to switch. 1 However, there are strong cross-country differences in the mix of debt use: for European listed companies the amount of loans outstanding is more than twice the amount of bonds. US firms, on the contrary, have less loans outstanding than bonds. Figure 1 shows aggregate amounts of bond debt, bank loans, and other debt for publicly listed corporations in North America, Europe, and Asia in 2010, demonstrating the very large geographical differences. 2 This international variation in the corporate debt mix, not previously documented in detail, cannot easily be explained by standard models of bank-bond choice, which focus on the superior monitoring ability of banks (Diamond 1991) or the fixed costs associated with bond issuance (e.g. Bhagat and Frost 1986). These forces do not vary in an obvious way across countries, especially not on the scale that could plausibly cause these wide differences in debt mix. After all, firms need monitoring both in France and Canada, and banks presumably screen and monitor their small and large borrowers with approximately the same technology.We propose instead that a better explanation of the broad cross-country patterns is offered by variation in the efficiency with which insolvency is resolved. Countries exhibit substantial differences in how creditors in insolvent f...

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“…It draws on the empirical literature on the determinants of corporate bond issuance at the firm and country level. Earlier studies predominantly for developed countries have shown that both firm-specific characteristics and the macroeconomic environment matter for firms' decisions to issue bonds (Houston andJames, 1996, Johnson, 1997;Dennis and Mihov, 2003;Hale and Santos, 2008;Mizen and Tsoukas, 2014, Didier et al, 2014, Gozzi et al, 2015. Important firm characteristics include firm size, growth and financial conditions while various other factors such as market depth, information asymmetries and market timing also play a key role.…”

Section: Related Literaturementioning

confidence: 99%

What slice of the pie? The corporate bond market boom in emerging economies

Ayala

Nedeljković

Saborowski

2017

Journal of Financial Stability

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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. This paper studies the determinants of shifts in debt composition among emerging market nonfinancial corporates. We show that the determinants of bond market access in EMs vary with global cyclical conditions and across local and foreign currency markets. We find that the role for institutions and macro fundamentals in creating an enabling environment for markets increased during the post-crisis period for local currency markets. Foreign bank linkages additionally explain why local currency bond markets increasingly substituted for banks in channeling liquidity to EMs. In the case of foreign currency markets, in turn, global cyclical factors accounted for most of the variation. Furthermore, a country's relative sensitivity to global factors appears to vary with the size of its foreign currency bond market rather than local fundamentals. Our results highlight the risk of capital flow reversal in those EMs that benefited from the upturn in the global financial cycle mostly due to the relative size of their bond markets rather than strong fundamentals. Terms of use: Documents inJEL-Codes: F300, G150, G200, G300.

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The decision to first enter the public bond market: The role of firm reputation, funding choices, and bank relationships

Cited by 109 publications

References 46 publications

What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia

What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia

Insolvency Resolution and the Missing High Yield Bond Markets

What slice of the pie? The corporate bond market boom in emerging economies

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