How Do Firms Choose Their Lenders? An Empirical Investigation

Posted: 11 Jan 2000  

Miguel R. Cantillo

University of California, Berkeley - Finance Group

Julian Wright

National University of Singapore (NUS) - Department of Economics

Abstract

This article investigates which companies finance themselves through intermediaries and which borrow directly from arm's length investors. Our empirical results show that large companies with abundant cash and collateral tap credit markets directly; these markets cater to safe and profitable industries, and are most active when riskless rates or intermediary earnings are low. We show that determinants of lender selection sharpen during investment downturns and that there are substantial asymmetries in the way firms enter and exit capital markets. These results support a theoretical framework where intermediaries have better reorganizational skills but a higher opportunity cost of capital than bondholders.

JEL Classification: G31, G32

Suggested Citation

Cantillo, Miguel R. and Wright, Julian, How Do Firms Choose Their Lenders? An Empirical Investigation. Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=181993

Miguel Cantillo-Simon (Contact Author)

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
510-643-1425 (Phone)
510-643-1420 (Fax)

Julian Wright

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

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