When opaque firms borrow: The role of investor sentiment

Elena Ferrer and Nuria Suárez

International Review of Financial Analysis, 2025, vol. 105, issue C

Abstract: We examine the effect of firm opacity on debt growth and how investor sentiment shapes this relationship. Using an international sample of firms during 2005–2019, we find that firm opacity negatively influences the growth in both bank and total debt ratios. This relationship is more relevant during periods of high investor sentiment. The role of investor sentiment is more prominent for firms with a lower proportion of bank ownership. The joint effect of firm opacity and investor sentiment is more relevant in countries with more developed institutions and greater creditor rights protection. Our results hold after addressing potential endogeneity concerns and additional tests.

Keywords: Bank debt growth; Total debt growth; Corporate opacity; Investor sentiment; Internal and external mechanisms (search for similar items in EconPapers)
JEL-codes: G20 G32 G40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:105:y:2025:i:c:s1057521925004971

DOI: 10.1016/j.irfa.2025.104410

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