Financial health and capital structure of non-financial firms: an international comparison
Abstract: This paper provides strong empirical evidence that financial architecture of the country in which the firm operates is the most important determinant of bonds issuance decisions by non-financial firms. We provide strong empirical evidence in support of these findings using a novel firm level dataset, which contains information about firm-bank linkages along with transactional information of bonds issuance for 1,576 non-financial firms in 13 countries from 2004 to 2014. Our findings suggest that after an increase in the market risk of banks, firms with average growth opportunities face higher bond spreads, issue bonds with higher amounts (intensive margin) and issue more number of bonds (extensive margin). In contrast, higher growth firms face lower bond spreads and experience an increase in intensive and extensive margins of bond financing. Most importantly, higher growth firms in market-oriented and in Asian and developed countries, perform better in terms of cost of debt and extensive and intensive margins of bond financing (as compared to lower growth firms in bank-oriented and non-Asian and developing countries). Our treated group (market-oriented, Asian and developed countries) is characterized by such countries in which firms have greater options of obtaining external financing from capital markets (non-bank modes of financing). We provide strong empirical evidence that demand side effects do not drive our results as we carefully control for firm’s demand for credit.
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