The Determinants of Private Debt Source

Research in Finance

ISBN: 978-0-7623-1345-7, eISBN: 978-1-84950-441-6

ISSN: 0196-3821

Publication date: 11 December 2006

Abstract

Recent studies on the use of private, non-bank, debt have given conflicting results. Instead of a fixed order of preference between various choices of debt as suggested by previous studies, this study postulates that there is a life cycle of debt choice, and as firms move through the cycle, their preferences change. For stable, mature firms, when given a choice, non-bank private debt would fall in between the two extremes of bank debt and public debt. We provide empirical as well as anecdotal evidence from the trade press to support this view. We jointly model the decision to choose a debt source as well as the amount of debt on data from a current database to focus on the “intentional” change in debt levels, rather than those due to unintentional changes. We find that there are significant interdependencies between the decision to borrow from a particular source, as well as the amount of loan, and that taxes, as well as lender reputation, degree of renegotiability and financial flexibility required by the borrower, are key factors that influence the choice of private debt source.

Citation

Siddiqi, N. (2006), "The Determinants of Private Debt Source", Chen, A. (Ed.) Research in Finance (Research in Finance, Vol. 23), Emerald Group Publishing Limited, Bingley, pp. 245-278. https://doi.org/10.1016/S0196-3821(06)23009-0

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2006, Emerald Group Publishing Limited

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.