Abstract
This paper shows the existence of a positive relationship between the issue of public debt and the reduction of firm's banking cost. This feature relies on three main arguments. First, banks can delegate to investors the supervision task, a fact that makes bank supervision less costly. Second, the issue of public debt increases firms' bargaining power in front of the banks, as the former can get funds through nonbank financing channels. Third, banks with no prior information on the issuing firm may interpret the issue of public debt as a positive signal of firm's quality. Additionally, we argue that the aforementioned effects are sensible to the maturity of the bond issued as well as to the existence of previous bond issues. We empirically test these and other related theoretical results making use of the SABE database during the 1993-1998 period. We find empirical support for our theoretical contentions.
Translated title of the contribution | Banking public debt and trading debt. A study of Spanish companies |
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Original language | Spanish |
Pages (from-to) | 465-497 |
Number of pages | 33 |
Journal | Revista Espanola de Financiacion y Contabilidad |
Volume | 33 |
Issue number | 121 |
DOIs | |
State | Published - 2004 |
Keywords
- Bank debt
- Public debt