What determines debt structure in emerging markets: Transaction costs or public monitoring?

John W. Goodell and Abhinav Goyal ()

International Review of Financial Analysis, 2018, vol. 55, issue C, 184-195

Abstract: We examine the predilection for private bonds over bank financing (debt structure) for emerging markets within the frameworks of both transaction cost economics and a transparency explanation, emphasizing the distinction between public monitoring (bonds) and private monitoring (banks), as well as considering the influence of national culture on institutions. Employing several tests, including structural equation modeling, we find, among many results that in emerging markets bonds are preferred over bank loans when there is less corporate opacity and fewer foreign access restrictions, as well as in environment of greater political instability, transaction cost, and limits to legal protection. Bonds are also favored over banks in cultural environments of greater uncertainty avoidance, masculinity, long-term orientation, and indulgence and less individualism. Overall, we attribute our results to culture and institutional quality together influencing debt structure, particularly by impacting attitudes toward public monitoring. Our results will be of great interest to researchers interested in the legal, social, and cultural environments of emerging markets.

Keywords: Emerging markets; Public monitoring; Transaction costs; Corporate bonds; Relationship financing; Debt structure; National culture (search for similar items in EconPapers)
JEL-codes: F39 G20 G21 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:55:y:2018:i:c:p:184-195

DOI: 10.1016/j.irfa.2017.07.004

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