Debt Structure and Corporate Performance in Emerging Markets
Research in International Business and Finance Vol 38. pp. 299-311, 2016
31 Pages Posted: 20 Jan 2015 Last revised: 16 May 2016
Date Written: February 22, 2016
This paper examines the effects of public and bank debt financing on firm performance in emerging markets. Using data on 700 publicly traded firms from the BRIC countries, it is documented that bank debt may have a positive effect on firm profitability. While overall market assessment of bank debt financing is negative, it is found that fully bank-financed firms lose less of their market value. Main findings remain unchanged after addressing potential endogeneity issues by introducing a novel instrumental variable. Overall, the results suggest that higher levels of bank financing may have positive effects on firm profitability and market valuation.
Keywords: debt financing, bank debt, firm performance, emerging markets
JEL Classification: G15, G30, G32
Suggested Citation: Suggested Citation