A Discrete Choice Model for Large Heterogeneous Panels with Interactive Fixed Effects with an Application to the Determinants of Corporate Bond Issuance

47 Pages Posted: 7 Jan 2016 Last revised: 13 Jan 2016

See all articles by Lena Boneva

Lena Boneva

Bank of England

Oliver B. Linton

University of Cambridge

Multiple version iconThere are 2 versions of this paper

Date Written: January 5, 2016

Abstract

This paper studies the effect of funding costs on the conditional probability of issuing a corporate bond in a novel dataset covering 5610 issuances by US financial and non-financial corporates over the period from 1990 to 2014. But identification of these effects is complicated by unobserved shocks such as a changing regulatory landscape or the global financial crisis. To account for these shocks, we extend the common correlated effects estimator to settings where outcomes are discrete. Both the asymptotic properties and the small sample behavior of this approach are documented. We find that for non-financial corporates, yields are negatively related to bond issuance but that effect is larger in the pre-crisis period. Splitting the data by the credit rating of the issuer reveals that the negative relationship between yields and corporate bond issuance is driven by firms with a low credit rating.

Keywords: Heterogeneous panel data; discrete choice models; capital structure

JEL Classification: C23; C25; G32

Suggested Citation

Boneva, Lena and Linton, Oliver B., A Discrete Choice Model for Large Heterogeneous Panels with Interactive Fixed Effects with an Application to the Determinants of Corporate Bond Issuance (January 5, 2016). Available at SSRN: https://ssrn.com/abstract=2711372 or http://dx.doi.org/10.2139/ssrn.2711372

Lena Boneva

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Oliver B. Linton (Contact Author)

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

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