Financing Investment: The Choice Between Bonds and Bank Loans

Erwan Morellec (), Philip Valta and Alexei Zhdanov ()
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Erwan Morellec: EPFL (École Polytechnique Fédérale de Lausanne), Swiss Finance Institute, CH-1015 Lausanne, Switzerland; and Centre for Economic and Policy Research, London EC1V 3PZ, United Kingdom
Alexei Zhdanov: Panagora Asset Management, Boston, Massachusetts 02210

Management Science, 2015, vol. 61, issue 11, 2580-2602

Abstract: We build a 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, with higher bargaining power in default, operating in more competitive product markets, or 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 that supports our theory.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2005 . This paper was accepted by Gustavo Manso, finance.

Keywords: debt choice; capital structure; investment; credit supply; competition (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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http://dx.doi.org/10.1287/mnsc.2014.2005 (application/pdf)

Related works:
Working Paper: Financing Investment: The Choice between Bonds and Bank Loans (2014)
Working Paper: Financing Investment: The Choice between Bonds and Bank Loans (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:61:y:2015:i:11:p:2580-2602

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