Debt specialization and diversification: international data

0


Summary

To concentrate

We study the variation between firms’ use of bond financing versus financing through loan facilities and examine firm-level characteristics that may help explain this variation in B2B financing. We compare the specialization and diversification of US corporate debt to that of Asian companies, a region with rapidly growing bond markets.

Contribution

Why do some companies borrow using only revolving credit facilities while others borrow exclusively through corporate bonds? Why does bank debt represent 90% of the debt of some companies while listed bonds represent 90% of the debt of other companies? We contribute to the vast literature that asks these and similar questions, studying the debt composition of more than 100,000 observations per corporate year in the United States and nine Asian markets.

Results

We are discovering a strong U-shape in bond financing by American companies. Small businesses and large corporations tend to rely much more on bond financing compared to debt financing than medium-sized companies. There is no corresponding U-shape in less developed Asian markets, while the advanced markets of Hong Kong SAR and Korea fall in the middle. These trends – and, more generally, the inter-firm variation in firms’ use of bond financing versus financing through loan facilities – are largely independent of credit quality or control effectiveness. Instead, we argue that market segmentation is at the root of these forms.


Abstract

We are discovering a strong U-shape in bond financing by American companies. Companies with total debt between $ 10 million and $ 100 million tend to use much less bond financing than debt financing than companies with more or less total total debt. There is no corresponding U-shape in less developed Asian markets, while the advanced markets of Hong Kong SAR and Korea fall in the middle. These trends, and more generally the inter-firm variation in firms’ use of bond financing versus financing through loan facilities, are largely independent of credit quality or control effectiveness. This suggests that market segmentation is more likely. Finally, we find evidence of debt diversification by heavily indebted companies.

JEL codes: G30, G32

Keywords: corporate bonds, capital structure, corporate finance, debt specialization, debt diversification


Share.

Comments are closed.