Financing Investment: The Choice between Bonds and Bank Loans

Erwan Morellec (), Philip Valta and Alexei Zhdanov ()

No 1010, HEC Research Papers Series from HEC Paris

Abstract: We build a dynamic model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive product markets, and facing lower credit supply are more likely to issue bonds. We also demonstrate that, by changing the cost of financing, these characteristics affect the timing of investment. We test these predictions using a sample of U.S. firms and present new evidence which supports our theory.

Keywords: debt structure; capital structure; investment; credit supply; competition (search for similar items in EconPapers)
JEL-codes: D83 G12 G32 G33 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-12-10
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-fmk
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Financing Investment: The Choice Between Bonds and Bank Loans (2015)
Working Paper: Financing Investment: The Choice between Bonds and Bank Loans (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1010

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