Financing Investment: The Choice between Bonds and Bank Loans

Erwan Morellec, Philip Valta and Alexei Zhdanov
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Erwan Morellec: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
Alexei Zhdanov: Pennsylvania State University

No 14-04, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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, 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 that supports our theory.

JEL-codes: D83 G12 G32 G33 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2014-05
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Citations: View citations in EconPapers (8)

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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 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1404

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