To read the full version of this content please select one of the options below:

How firms borrow in international bond markets: Securities regulation and market segmentation

Alberto Fuertes (Banco de Espana, Madrid, Spain)
Jose María Serena (Banco de Espana, Madrid, Spain)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 12 February 2018

Abstract

Purpose

This paper aims to investigate how firms from emerging economies choose among different international bond markets: global, US144A and Eurobond markets. The authors explore if the ranking in regulatory stringency –global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – leads to a segmentation of borrowers.

Design/methodology/approach

The authors use a novel data set from emerging economy firms, treating them as consolidated entities. The authors also obtain descriptive evidence and perform univariate non-parametric analyses, conditional and multinomial logit analyses to study firms’ marginal debt choice decisions.

Findings

The authors show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets. On the contrary, firms issuing global bonds – subject to full Securities and Exchange Commission requirements – are financially sounder and larger. This exercise also shows that following the global crisis, firms from emerging economies are more likely to tap less regulated debt markets.

Originality/value

This is, to the authors’ knowledge, the first study that examines if the ranking in stringency of regulation – global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – is consistent with an ordinal choice by firms. The authors also explore if this ranking is monotonic in all determinants or there are firm-specific features which make firms unlikely to borrow in a given market. Finally, the authors analyze if there are any changes in the debt-choice behavior of firms after the global financial crisis.

Keywords

Citation

Fuertes, A. and Serena, J.M. (2018), "How firms borrow in international bond markets: Securities regulation and market segmentation", Journal of Financial Regulation and Compliance, Vol. 26 No. 1, pp. 135-169. https://doi.org/10.1108/JFRC-11-2016-0100

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited