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Debt maturity and the choice between bank loans and public bonds

Author

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  • Ca Nguyen

    (University of Arkansas – Fort Smith)

  • John K. Wald

    (University of Texas at San Antonio)

Abstract

We explore the relation between the maturity of new debt issues and firms’ choice between bank loans and public bonds. We use borrowing firms’ asset maturity and effective tax rates to instrument for the debt maturity, and bank competition and bank liquidity in the borrowers’ state to instrument for the debt choice. The analysis provides evidence of causality in both directions. Consistent with theories based on information asymmetry and agency costs, we find that firms which seek to increase the borrowing term by one standard deviation are 30% less likely to choose bank loans, while firms which prefer bank loans have 70 months shorter maturity on average. Our results remain significant, albeit with smaller economic magnitudes, when we use different samples, include firm fixed effects, or use heteroskedasticity based instruments as in Lewbel (J Bus Econ Stat 30(1):67–80, 2012).

Suggested Citation

  • Ca Nguyen & John K. Wald, 2022. "Debt maturity and the choice between bank loans and public bonds," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 239-272, July.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:1:d:10.1007_s11156-022-01067-7
    DOI: 10.1007/s11156-022-01067-7
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    Cited by:

    1. Bailly, Hugo & Mortier, Frédéric & Giraud, Gaël, 2024. "Empirical analysis of a debt-augmented Goodwin model for the United States," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 619-633.
    2. Wajih Abbassi & Sabri Boubaker & Wael Louhichi, 2024. "Why do corporate social responsibility‐oriented companies opt for bond debt? Evidence from crisis periods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1534-1568, April.
    3. Santiago Camara & Maximo Sangiacomo, 2022. "Borrowing Constraints in Emerging Markets," Papers 2211.10864, arXiv.org.

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    More about this item

    Keywords

    Bank loans; Public bonds; Debt maturity; Debt choice;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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