Evidence on the External Finance Premium from the US and Emerging Asian Corporate Bond Markets

Paul Mizen and Serafeim Tsoukas

No 142008, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds especially for the emerging Asian market. In this paper we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for the United States, Hong Kong, China, Korea and Thailand during 1995-2005 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity we show that financial variables appear to be both statistically and quantitatively more important in the Asian market than in the US. Finally, the premium is more sensitive to firm-level variables during credit crunches, recessions and sudden stops than other periods, with stronger effects for the Asian bond market.

Keywords: Financing Constraints; External Finance Premium; Emerging Asian Markets (search for similar items in EconPapers)
JEL-codes: F32 F34 G32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008-07
New Economics Papers: this item is included in nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Evidence on the external finance premium from the US and emerging Asian corporate bond markets (2006)
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