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This paper addresses the following questions: Why do some firms employ multiple debt types? What explains debt heterogeneity? Is the choice of the source of debt a function of corporate governance?

The author's paper is empirical and uses multiple regression analysis.

Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Contrastingly, firms that are well-managed tend to concentrate debt and borrow predominantly from a few creditors. The author also found that while bank debt is negatively associated with debt concentration, market debt is positively associated with debt concentration.

Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Well-managed firms tend to concentrate debt and borrow predominantly from a few creditors. Bank debt is negatively associated with debt concentration and market debt is positively associated with debt concentration.

Policymakers and practitioners need to account not only for changes in the firm’s total debt level but also for changes within the firm’s debt composition. Understanding a manager’s choice of debt structure can incentivize creditors to effectively monitor and use debt concentration as a form of commitment device that transfers some control rights from the manager to creditors.

While a vast body of corporate finance literature examines the conflict between shareholders and management, there is little empirical work on the conflict between creditors and management. In this paper, the author examines how managerial entrenchment affects debt structure. The results provide a comprehensive picture of how corporate governance influences debt choice(s).

This paper analyzes the role of trade credit in financial crises. Using newly collected data, we investigate the impact of negotiated agreements between debtor and creditor countries on bilateral trade. Our results indicate that exports to creditor countries rise considerably after debt restructuring agreements in the period 1980–1997, while we find no effect for imports and for the more recent period. We identify trade credit as one key channel behind this positive effect. Apparently, crisis resolution efforts, in particular agreements to extend and roll over trade credits, play a crucial role for export recoveries. This gives some support to current worldwide efforts to sustain trade financing via coordinated policy interventions.

This paper examines relationship between bargaining powers of creditors as well as employees and financial leverage across countries. The purpose of this paper is to explore roles of creditors and employees in capital structure decisions under different legal and political regimes across countries.

Using country‐level creditor rights index and labor rights index as a proxy for bargaining powers of creditors and employees, respectively, the author addresses the interaction between creditors as well as employees and shareholders. The paper tests the impact of employee rights and creditor rights on capital structure across countries.

The author finds a positive relationship between employee rights and firms' use of debt and a negative relationship between creditor rights and firm debt ratio.

The paper provides a new perspective to interpret international variation in financial leverage in the world. The results obtained from this paper help us to understand financial leverage in different countries with various corporate governance mechanisms.

This paper takes all stakeholders into account when studying agency problems; it explores the role of creditors and employees in financing decision making under various corporate governance patterns and political and legal systems across countries.

The demand-side view of creditor rights posits a negative association between creditor rights and corporate borrowings. The purpose of this paper is as follows: first, the author examines whether the demand-side effect is more pronounced amongst firms with excess promoter shareholding. Subsequently, the authors analyze the impact of high promoter holdings on investment decisions owing to bankruptcy reforms.

To answer the above questions, the authors exploit the passage of the Insolvency and Bankruptcy Code (IBC) (2016) that strengthens the creditor rights of lenders, which impacts the borrowings and financing activities of Indian corporates. Using a panel of listed Indian firms over the period of 2012–2019, the authors analyze how the IBC affects firms’ borrowings and financing decisions with excess promoter holdings.

The authors find that bankruptcy reforms led to a statistically significant decline in the use of borrowed funds (primarily secured and long-term debt) by firms with high concentrated holdings. The analysis also indicates that firms with excess promoter ownership face an increased cost of debt due to bankruptcy reforms. As a result, firms with excess promoter holdings curtail their investments. Overall, the results indicate that India’s bankruptcy reforms significantly affect the firms’ financing and investment decisions with highly concentrated ownership.

While past research has explored the relationship between bankruptcy reforms and demand for/supply of debt, the authors provide novel empirical evidence on the role of promoter holdings that affects the relationship between bankruptcy law and financing and investment decisions. To the best of the author’s knowledge, this study is the first to investigate the role of ownership structure in the context of bankruptcy reforms by using a quasi-natural experiment.

The purpose of this paper is to analyze the importance of information asymmetry in the relationships between Portuguese SME's capital structure decisions and creditors, comparing the results of service SME with those found in manufacturing SMEs.

Two samples of Portuguese SMEs are considered: one sample is composed by 610 unlisted service SMEs; and, the other sample is made up by 381 unlisted SMEs in manufacturing industry, for the period 1999‐2006. To estimate the results, the two‐step estimation method is used, to control possible bias arising from data selection. In the first step, probit regression is used. In the second step, after the control for possible data bias, dynamic panel estimators are used.

The results obtained suggest that information asymmetry in the relationships between SMEs and creditors has a greater relative influence on capital structure decisions of service SMEs than on those of manufacturing SMEs.

Given the increasing importance of service SMEs in the Portuguese economy for stimulating employment, business volume, and consequently economic growth, it would be advisable for policy makers to create special long‐term lines of credit, with advantageous terms, so that Portuguese service SMEs, when internal finance is insufficient, can finance more efficiently the growth opportunities and the strategies for diversification. In addition, since SMEs' capital structure decisions present differences, both concerning the sector of industry and over time, the measures adopted by policy makers should differentiate their measures between industry sectors and over time.

First, this paper is pioneering in comparing the adjustment of actual short‐ and long‐term debts, in service and manufacturing SMEs, towards the respective target ratios. Second, it is pioneering in using dynamic estimators and in using the two‐step estimation method, in studies of determinants of capital structure decisions of service and manufacturing SMEs.

This chapter surveys papers and the related literature on the relationship between banks’ creditor structure and bank risk during the period of liquidity crises. Departing from the conventional banking literature, which points to deteriorating asset quality to be the culprit for the amplified bank risk in the midst of financial crises, the studies in the aftermath of the global financial crisis look into the liability side of the bank balance sheet as a potential source for the augmented bank risk during the financial crisis when there is a liquidity contraction. Recent studies theorize and provide empirical evidence that banking institutions with a greater share of large lenders and an economy with high noncore bank liabilities in the banking sector may experience heightened bank risk or country risk. We also search for policy implications from this survey.

The purpose of this paper is to investigate the determinants of bankruptcy protection duration of Canadian public firms, and also investigate the duration for various bankruptcy outcomes including the liquidation and re-emergence of bankrupt firms.

This study uses data on all Canadian public firms that applied for bankruptcy protection over the period 1992–2014. The authors mainly apply duration and survival analyses to draw the main conclusions.

The authors find that larger and older firms with more complicated structures and issues to settle tend to remain under protection from creditors longer, and also ascertain that the fate of relatively successful companies is determined faster. Moreover, the authors report that it takes less time to achieve a final solution for firms under bankruptcy protection when interest rates are increasing and the term spread is high. Finally, firms that file for protection under the Companies’ Creditors Arrangement Act (CCAA) spend longer restructuring than firms that file under the Bankruptcy and Insolvency Act.

The paper investigates only publicly listed firms. The data on private firms that are required to conduct the research are not available.

Various stakeholders including regulators can predict the bankruptcy protection period using the paper’s findings. Depending on the desired outcomes (reduce uncertainly, safeguard jobs or protect creditors’ rights), specific rules can be followed.

To the authors; knowledge, this is the first paper that investigates the Canadian bankruptcy protection duration. It uses the unique Canadian framework to infer the determinants of bankruptcy protection duration and bankrupt firms’ outcomes.

This paper aims to analyze whether a relationship exists between the debt structure concentration and investment–cash flow sensitivity of Brazilian companies.

The study is based on a sample of 500 Brazilian firms (337 unlisted and 163 listed) in the 10-year period from 2010 to 2019 analyzed according to the investment–cash flow sensitivity model.

The results show evidence that companies with more concentrated debt structures tend to have lower investment sensitivity to internal cash flow. In other words, firms with a greater concentration of debts tend to have less investment–cash flow sensitivity. In general, the results are robust to (1) variation of the debt concentration proxy and the independent variable; (2) the control of fixed effects in different dimensions and (3) use of estimator for endogeneity treatment, i.e. two-stage least squares (2SLS) and generalized method of moments (GMM).

Various studies have investigated whether specific financing sources reduce financial constraints, but few have addressed the relationship between debt concentration and these constraints. Besides this, to the best of the authors’ knowledge, no previous study has investigated the mentioned relationship in a sample of unlisted firms. This analysis is relevant since the effects of financial constraints tend to be stronger on companies that have restricted access to the capital market.

The governing role of bank-appointed directors (BADs) on the boards of non-financial firms has a potential to reduce information asymmetry between the firm and non-bank lenders. This should increase the confidence of other creditors in firm activities, thus performing the certification role. Therefore, the purpose of this paper is to empirically examine the certification role of BADs.

The authors test their hypotheses by using a panel of Indian non-financial firms. Our approach involves examining whether there is a significant difference in the number of different debt sources, the dispersion of debt among different debt sources, and leverage for BAD and Non_BAD Firms. The authors use univariate analysis and multivariate regression models to test the difference.

The authors find that firms with BADs on their board have (1) access to a higher number of different debt sources, (2) debt distributed evenly among different sources and (3) a higher debt ratio. Overall, our study provides supporting evidence for the certification role that BADs play on the boards of non-financial firms.

The authors contribute to the literature in two aspects. First, to the best of our knowledge, this is the only study that examines the effect of the governing role of banks on the lending decisions of non-bank lenders. Second, our study is associated with the growing body of the governance literature in the emerging markets context by examining the interaction of financial policies and governance in an institutional framework, which is very different from that of the developed world.

International business, Accounting and Finance.

Undergraduate and Postgraduate levels (advanced financial accounting, international accounting, other accounting and business courses with an international setting.

The case uses the Asia Pulp & Paper Company’s (APP) entry into the international debt market to highlight the consequences of different business practices between the East (in this case, Indonesia) and the West. On the one hand, it shows that APP was set up as the “front” to access international debt capital; on the other, it reveals the naïvety of Western lenders who parted with their funds without conducting a thorough background research on the financial viability of the company they invested in. The APP debacle is a poignant reminder for market participants and business/accounting students that the divergence of the business settings across countries can make business contractual arrangements tenuous and corporate financial information irrelevant to its users. It also exposes the unique ways of how some Asian countries conduct their business affairs.

The following are the expected learning outcomes: comprehend the impact of differences in culture and ethnic origin on business practices; evaluate the impact of cultural nuances on the legality of contracts in the international business setting; understand the impact of currency fluctuation on the financial position of multinational firms; and be more cautious in conducting business and entering into contracts with foreign firms.

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CCS 1: Accounting and Finance.