Asymmetric Information and Corporate Lending: Evidence from SME Bond Markets*

Alessandra Iannamorelli, Stefano Nobili, Antonio Scalia and Luana Zaccaria

Review of Finance, 2024, vol. 28, issue 1, 163-201

Abstract: Using a comprehensive dataset of Italian small and medium-sized enterprises, we find that differences between private and public information on firm creditworthiness affect the decision to issue bonds. Our evidence supports favorable (rather than adverse) selection in corporate bond markets. Specifically, holding public information constant, firms with better private fundamentals are more likely to access bond markets. These effects are weaker for opaque firms and stronger for firms with worse publicly observable risk. Additionally, credit conditions improve for issuers following the bond placement, compared with a matched sample of non-issuers. This is consistent with a model where banks offer more flexibility than markets during financial distress and firms use market lending to signal credit quality to outside stakeholders.

Keywords: Asymmetric information; Bank credit; Bond markets; SME finance (search for similar items in EconPapers)
JEL-codes: D82 G21 G23 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Asymmetric Information and Corporate Lending: Evidence from SMEs Bond Markets (2021)
Working Paper: Asymmetric information in corporate lending: evidence from SME bond markets (2020)
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