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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.

The purpose of this paper is to instruct upper level business students on the intricacies of the debt‐equity choice with the emphasis on showing the interrelation of this choice with the plowback‐payout choice.

The paper is designed around a pedagogical exercise that applies academic theories on the computation of the gain to leverage for an unleveraged nongrowth firm. A question and answer methodology is used within the exercise. The approach is instructional as it attempts to teach students about firm valuation and the variables that are important in the valuation process. The firm valuation method is based on perpetuity equations with and without growth.

Unlike an empirical study that concentrates on providing findings from a data analysis, this paper attempts to instill knowledge and skills to students when making debt‐equity and plowback‐payout choices.

All gain to leverage equations used in this paper are limited by their derivational assumptions and the estimation of values for variables used in the equations.

Besides using the traditional Modigliani and Miller (MM)‐Miller gain to leverage equations, this paper also uses more recent gain to leverage equations that attempt to bridge the gap between theory and practice by applying new theory on the impact of the plowback‐payout choice on the debt‐equity choice. Students will be able to compare traditional and recent gain to leverage equations and form their own opinions as to their potential value in practice. In the process, they should get an idea of the practical complexities of financial decision‐making.

Optimizing firm value through proper decision‐making implies there is a proper and efficient utilization of societal resources.

The paper builds on a prior pedagogical paper that incorporated discount rates (costs of borrowing) within the nongrowth MM‐Miller gain to leverage framework. This paper's originality and value lies in being the first pedagogical paper to incorporate growth as determined by the plowback‐payout decision within the nongrowth gain to leverage framework.

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.

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.

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.

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.

The main purpose of this paper is to empirically examine how firm-specific (idiosyncratic) and macroeconomic risks affect the external financing decisions of UK manufacturing firms. The paper also explores the effect of both types of risk on firms' debt versus equity choices.

The paper uses a firm-level panel data covering the period 1981-2009 drawn from the Datastream. Multinomial logit and probit models are estimated to quantify the impact of risks on the likelihood of firms' decisions to issue and retire external capital and debt versus equity choices, respectively.

The results suggest that firms considerably take into account both firm-specific and economic risk when making external financing decisions and debt-equity choices. Specifically, the results from multinomial logit regressions indicate that firms are more (less) likely to do external financing when firm-specific (macroeconomic) risk is high. The results of probit model reveal that the propensity to debt versus equity issues substantially declines in uncertain times. However, firms are more likely to pay back their outstanding debt rather than to repurchase existing equity when they face either type of risk. Of the two types of risk, firm-specific risk appears to be more important economically for firms' external financing decisions.

The findings of the paper are equally useful for corporate firms in making value-maximizing financing decisions and authorities in designing effective fiscal and monetary policies to stabilize macroeconomic conditions. Specifically, the findings emphasize on the stability of the overall macroeconomic environment and firms' sales/earnings, which would result stability in firms' capital structure that help smooth firms' investments and production.

Unlike prior empirical studies that mainly focus on examining the impact of risk on target leverage, this paper attempts to examine the influence of firm-specific and macroeconomic risk on firms' external financing decisions and debt-equity choices.

In this study we analyze the determinants of the type and structure of debt included in dual offerings of debt and equity. Our sample consists of 54 dual offerings of convertible bond and common stock (CBCS) and 258 dual offerings of straight bond and common stock (SBCS). We find that firms with high asset substitution problems are more likely to issue CBCS offerings instead of SBCS offerings. These firms are also more likely to include convertible bonds with a high probability of conversion in the issue. The probability of CBCS offerings is higher for firms with low information asymmetry and during high interest rate periods. We also find that the announcement returns of CBCS offerings are lower than the returns of SBCS offerings.

This study is motivated by recent research suggesting that the funding benefits of using Big Four auditors may not be as uniform as were previously assumed. The purpose of this paper is to analyze the relationship between use of Big Four auditors and access to debt capital by applying data from microfinance institutions (MFIs) in emerging countries, a population typically not investigated in accounting research.

The authors apply a unique hand-collected data set from 60 emerging markets and empirically investigate whether access to various debt categories is related to the use of Big Four auditors.

The authors find that access to international commercial debt, international subsidized debt and government agency debt is positively related to the use of a Big Four auditor. For local commercial debt, the authors find no association between auditor type and access to debt capital. The association between auditor choice and access to debt capital is stronger for nonprofit than for-profit MFIs.

This is the first audit quality study to include a broad sample of emerging countries, which in itself is an important contribution. As far as general audit quality research is concerned, the authors take the literature one step further by showing that the benefits of using a Big Four auditor may be dependent on the specific source of debt financing a firm or organization seeks to use. Moreover, the authors demonstrate that the for-profit vs nonprofit dimension influences the relationship between auditor choice and access to capital.

The purpose of this paper is to instruct advanced business students on the debt-equity choice by showing how wealth transfers between security holders influence security values when a levered firm undergoes an incremental debt-to-equity approach.

The design involves a pedagogical exercise that applies gain to leverage (GL) formulas for a firm aspiring to increase its value by exchanging debt for equity. The valuation method includes perpetuity formulations including those with growth and wealth transfers. The instructional approach offers an understanding of the debt-equity decision.

Unlike studies that provide empirical findings or new theories, this paper provides knowledge and skills for students learning capital structure decision making.

All GL equations in this paper are limited by derivational assumptions and estimation of values for variables.

This paper bridges the gap between theory and practice by illustrating the impact of the costs of borrowings, growth rates and risk shifts on debt-equity decision making. Students will learn and apply GL equations. They will get an appreciation for the practical complexities of financial decision making including the agency complication embodied in wealth transfers.

Society can be enhanced to the extent this paper helps future financial managers make optimal capital structure decisions.

This paper adds to the Capital Structure Model (CSM) pedagogical research by using the new CSM equations that address a levered situation and incremental approach. As such, it is the first CMS instructional paper to incorporate wealth transfers between security holders.

Unlike previous studies on capital structure decisions, the purpose of this paper is to focus on US real estate investment trusts (REITs) in order to find out the main determinants of capital structure choice for real estate companies and in order to verify if they are related to factors similar to those affecting the decisions of public firms in other sectors.

Using a methodology similar to Rajan and Zingales, a sample of 119 listed REITs with different investment strategies and in different property sectors was analyzed. The analysis is carried out in order to determine the basic factors underpinning the capital structures by selecting financial items and ratios related with leverage (such as asset size, profitability ratios, tangibility of assets, growth opportunities, operating risk and geographical diversification of investments).

Results show that REITs follow a pecking order theory of financing since more profitable firms are less levered and REITs with more growth opportunities have higher leverage ratios. The tangibility of assets turns out to be positively correlated with leverage, while REITs whose operating risk is high prefer a lower financial risk and consequently a lower gearing. Finally, it is not clear how size affects leverage decisions and more diversified REITs appear to be riskier.

The research also addresses the issue of asymmetric information and the debt‐equity choice for REITs sampled on the basis of their size, highlighting differences with other business sectors.

The focus of this paper is on the problem of managerial opportunism in the corporate governance of UK quoted property companies. Agency conflicts exist between firm managers and owners because of the separation of ownership from management. Consequently, managers pursue activities that enhance their interests rather than that of the shareholders’. The empirical investigation of this paper is divided into two sections. The first part examines the ownership structure of 83 UK quoted property companies between 1989 and 1995, revealing that close to a quarter of the common shares issued by the companies are held by the managers. The gap between ownership and management appears to increase with firm size, risk and growth rate but decrease with corporate performance. In the second section, logit modeling is employed to examine 110 security issues of the companies during the study period. The evidence shows that ownership structure has an influence on the debt‐equity choice of property companies. Consistent with the findings of previous studies, the study also reveals that the capital structure choice is dictated to a large extent by company size, issue size, and condition of the security market. The empirical analysis also suggests that property companies make their financing decisions as though they have a target capital structure in mind.

This paper aims to investigate the determinants of choice between private and public debt for British and German listed companies.

The paper is based on three strands of theories: the “liquidation and renegotiation” hypothesis; the “moral hazard and adverse selection” hypothesis; the “flotation cost” hypothesis. The regression analysis was adopted to test these hypotheses. The specific econometric method used for panel data is generalised method of moments (GMM).

The evidence records a few similarities in debt‐mix structure of German and UK firms but it also detects some important differences. Therefore, the paper concludes that the relation between dependent and explanatory variables is country‐dependent. This can be attributed to the differences in corporate governance mechanisms and institutional features of the countries.

The limitation mainly has come from data unavailability for public debt. Future research could be to extend the number of countries to have a better idea for the impact of institutional factors on corporate debt‐mix.

The findings confirm that the debt ownership decision of listed firms is not only the result of their own characteristics but also the outcome of legal and financial environment and corporate governance traditions in which they operate. The way managers decide about the type of debt financing is not universal. Furthermore, the factors such as liquidation and renegotiation, moral hazard and adverse selection, flotation costs are found to be significantly relevant while deciding the mix of corporate debt.

This study offers a unique comparison of the evidence from a bank‐based economy (Germany) and a market‐based economy (UK) that should have direct implications on the choice between bank debt and public debt. Firms with a long‐run debt ownership target attain it through an adjustment process. The authors are not aware of any other study on debt ownership that controls for endogeneity using the GMM technique.