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The Role of Private and Public Debt in Corporate Capital Structures

Author

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  • John C. Easterwood
  • Palani-Rajan Kadapakkam

Abstract

This paper examines the extent of reliance on private debt from 1980 through 1988 for a set of firms selected from Fortune 500 firms in 1980. The average firm in this set obtained more than half of its debt from private sources throughout the period, with a slight decline in the mid-1980's. Cross-sectional analysis reveals that a firm's reliance on private markets for debt financing is negatively related to the amount of outstanding long-term debt. Use of private debt is not linked to standard proxies for the potential for leverage-related costs for this group of firms.

Suggested Citation

  • John C. Easterwood & Palani-Rajan Kadapakkam, 1991. "The Role of Private and Public Debt in Corporate Capital Structures," Financial Management, Financial Management Association, vol. 20(3), Fall.
    • Handle: RePEc:fma:fmanag:easterwood91
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    Cited by:

    1. Hale, Galina & Santos, João A.C., 2008. "The decision to first enter the public bond market: The role of firm reputation, funding choices, and bank relationships," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1928-1940, September.
    2. Sharpe, Ian G. & Woo, Li-Anne E., 2005. "Corporate control, expected underpricing, and the choice of issuance mechanism in unseasoned equity markets," Journal of Corporate Finance, Elsevier, vol. 11(4), pages 716-735, September.
    3. Sylvain Champonnois, 2006. "Comparing Financial Systems: A structural Analysis," 2006 Meeting Papers 520, Society for Economic Dynamics.
    4. Linda M. Hooks, 2003. "The impact of firm size on bank debt use," Review of Financial Economics, John Wiley & Sons, vol. 12(2), pages 173-189.
    5. Galina Hale & João A. C. Santos, 2006. "Evidence on the costs and benefits of bond IPOs," Working Paper Series 2006-42, Federal Reserve Bank of San Francisco.
    6. Krishnaswami, Sudha & Spindt, Paul A. & Subramaniam, Venkat, 1999. "Information asymmetry, monitoring, and the placement structure of corporate debt," Journal of Financial Economics, Elsevier, vol. 51(3), pages 407-434, March.
    7. Saibal Ghosh, 2007. "Bank Debt Use and Firm Size: Indian Evidence," Small Business Economics, Springer, vol. 29(1), pages 15-23, June.
    8. Asimakopoulos, Panagiotis & Asimakopoulos, Stylianos & Li, Xinyu, 2023. "The role of environmental, social, and governance rating on corporate debt structure," Journal of Corporate Finance, Elsevier, vol. 83(C).
    9. Nakamura, Masao, 2002. "Mixed ownership of industrial firms in Japan: debt financing, banks and vertical keiretsu groups," Economic Systems, Elsevier, vol. 26(3), pages 231-247, September.
    10. Christopher Gan & Yuan Zhang & Zhaohua Li & David A. Cohen, 2014. "The evolution of China’s banking system: bank loan announcements 1996–2009," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(1), pages 165-188, March.
    11. Marshall, Andrew & McCann, Laura & McColgan, Patrick, 2019. "The market reaction to debt announcements: UK evidence surrounding the global financial crisis," The British Accounting Review, Elsevier, vol. 51(1), pages 92-109.
    12. Nico Dewaelheyns & Cynthia Van Hulle, 2010. "Internal Capital Markets and Capital Structure: Bank Versus Internal Debt," European Financial Management, European Financial Management Association, vol. 16(3), pages 345-373, June.
    13. Hooks, Linda M., 2003. "The impact of firm size on bank debt use," Review of Financial Economics, Elsevier, vol. 12(2), pages 173-189.
    14. Jean-Daniel Guigou & Laurent Vilanova, 1999. "Les vertus du financement bancaire: fondements et limites," Revue Finance Contrôle Stratégie, revues.org, vol. 2(2), pages 97-133, June.
    15. Mehdi Nekhili, 1999. "Le choix du type et de la maturité de la dette par les firmes françaises," Revue Finance Contrôle Stratégie, revues.org, vol. 2(3), pages 179-206, September.
    16. Esho, Neil & Lam, Yung & Sharpe, Ian G., 2002. "Are maturity and debt type decisions interrelated? Evidence from Australian firms in international capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 10(5), pages 549-569, November.
    17. Mark S. Carey & Stephen D. Prowse & John Rea & Gregory F. Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    18. Davydov, Denis & Nikkinen, Jussi & Vähämaa, Sami, 2014. "Does the decision to issue public debt affect firm valuation? Russian evidence," Emerging Markets Review, Elsevier, vol. 20(C), pages 136-151.
    19. Esho, Neil & Lam, Yung & Sharpe, Ian G., 2001. "Choice of Financing Source in International Debt Markets," Journal of Financial Intermediation, Elsevier, vol. 10(3-4), pages 276-305, July.

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