Bank Credit and Market-based Finance for Corporations: The Effects of Minibond Issuances

Abstract

Does a diversification of funding sources affect the financing conditions for firms? To answer this question, we study a regulatory reform which allows unlisted firms to issue minibonds. Using the Italian Credit Register, we compare new loans granted to issuer firms with new loans concurrently granted to similar non-issuer firms. We find that issuer firms obtain lower interest rates on bank loans of the same maturity than non-issuer firms, potentially due to a change in the seniority structure of corporate debt. Issuer firms reduce the amount of used bank credit but increase the overall amount of available external funds, pointing to a partial substitution of bank credit. Looking at the ex-post performance, issuer firms expand their total assets and fixed assets, while raising their leverage.

Keywords: Bank Credit, Capital Markets, Minibonds, Loan Pricing, SME Finance.

JEL Classification: G21, G23, G32, G38