The Determinants of Corporate Debt Ownership Structure: Evidence from Market-Based and Bank-Based Economies

Abstract

We compare the determinants of the corporate debt ownership structure in a bank-oriented economy (Germany) and market-oriented economy (UK). The results, that are controlled for endogeneity, simultaneity and measurement errors, show that the firms in both countries adjust their debt ownership structure towards their target levels – British firms being the swifter. The evidence supports the predictions of the liquidation and renegotiation, and the flotation cost hypotheses in both countries. However, the moral hazard and adverse selection hypothesis receives support only in the UK. Moreover, the influence of market related factors on the choice of the lender is country dependent. Overall, the debt ownership structure of a firm is influenced by both the firm-specific factors and the financial traditions in which the firm operates.

Keywords: Dynamic debt ownership structure, Panel data, GMM

JEL Classification: G2, G32