Asymmetric Information and Corporate Lending: Evidence from SME Bond Markets

50 Pages Posted: 13 Oct 2020 Last revised: 19 Mar 2021

See all articles by Stefano Nobili

Stefano Nobili

Bank of Italy

Antonio Scalia

Bank of Italy

Luana Zaccaria

Einaudi Institute for Economics and Finance (EIEF)

Alessandra Iannamorelli

Bank of Italy

Date Written: September 29, 2020

Abstract

Using a comprehensive dataset of Italian SMEs, we find that differences between private and public information on firm creditworthiness affect the decision to issue traded debt securities. Specifically, holding public information constant, firms with better private fundamentals are more likely to access bond markets. Additionally, credit conditions improve for issuers following the bond placement, compared with a matched sample of non-issuers. Thus, our evidence supports 'positive' (rather than adverse) selection in corporate bond markets. This is consistent with a model where banks offer more flexibility than markets during financial distress and firms use market lending to signal credit quality to outside stakeholders.

Keywords: asymmetric information, bank credit, bond markets, SME finance

JEL Classification: G10, G21, G23, G32

Suggested Citation

Nobili, Stefano and Scalia, Antonio and Zaccaria, Luana and Iannamorelli, Alessandra, Asymmetric Information and Corporate Lending: Evidence from SME Bond Markets (September 29, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1292, Available at SSRN: https://ssrn.com/abstract=3710104 or http://dx.doi.org/10.2139/ssrn.3710104

Stefano Nobili (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Antonio Scalia

Bank of Italy ( email )

Financial Risk Management
Via Nazionale 91
Rome, 00184
Italy
+39 06 4792 3390 (Phone)

Luana Zaccaria

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana, 62
Rome, 00187
Italy

Alessandra Iannamorelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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