Institutions Arrangements and Debt Financing
50 Pages Posted: 22 Sep 2012 Last revised: 9 Feb 2015
Date Written: November 14, 2013
We find that institutional arrangements have an impact on the real economy by affecting firms’ choice between private and public debt and the subsequent financing costs. Using new debt issued by firms in 26 non-US countries, we find, after controlling for firm characteristics predicted by debt agency and information asymmetry theories, that the level of financial market development, the efficiency of bankruptcy procedure, the integrity and enforceability of laws, and the transparency of financial information have significant impacts not only on firms’ debt choice and yield to maturity in domestic debt market, but also their issuance choice in the international debt market.
Keywords: debt placement, bond yield, legal protection, institutional arrangements
JEL Classification: G32, G33, F34, K20
Suggested Citation: Suggested Citation