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Asymmetric Information and Corporate Lending: Evidence from SMEs Bond Markets

Alessandra Iannamorelli, Stefano Nobili, Antonio Scalia () and Luana Zaccaria ()
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Alessandra Iannamorelli: Bank of Italy

No 2105, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: Using a comprehensive dataset of Italian SMEs, we find that differences between private and public information on firm creditworthiness affect the decision to issue traded debt securities. Specifically, holding public information constant, firms with better private fundamentals are more likely to access bond markets. Additionally, credit conditions improve for issuers following the bond placement, compared with a matched sample of non-issuers. Thus, our evidence supports 'positive' (rather than adverse) selection in corporate bond markets. 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.

Pages: 50 pages
Date: 2021, Revised 2021-03
New Economics Papers: this item is included in nep-cfn, nep-eur, nep-fmk and nep-sbm
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