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The impact of firm size on bank debt use

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  • Linda M. Hooks

Abstract

I use a sample of US firms to examine the determinants of the concentration of bank debt in total debt. The results indicate that the factors vary by size of the firm. A small‐ to medium‐sized firm has a high concentration of bank debt when it has a low level of discretionary spending. In contrast, a large firm has a high concentration of bank debt when it is difficult for outsiders to observe. The results support the Diamond [J Polit Econ 99 (1991) 689] reputation view that a firm faces different debt choices as it grows. When evaluating bank regulations, policymakers should consider the importance of the reputation‐building services, which a bank provides to businesses.

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  • 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.
    • Handle: RePEc:wly:revfec:v:12:y:2003:i:2:p:173-189
    DOI: 10.1016/S1058-3300(02)00064-2
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