We examine how small and medium-sized enterprises (SMEs) may signal their quality and growth orientation to the market and the effect on the cost of bond funding, which is often high for unlisted firms and SMEs mainly because of their information opacity and higher riskiness. The paper contributes to the growing European debate on market innovations aimed at facilitating funding for smaller and nonlisted firms, breaking from the prior main focus on the cost for large and listed companies of accessing liquid bond markets.We analyze 220 mini-bonds listed in Italy between 2013 and 2017 to examine determinants of yield spreads. Our explanatory variables are size, age, and tangible assets-all indicators of the firm's information opacity-together with the issuer's growth opportunities, rating availability, and the presence of a guarantee. The findings suggest that tangible assets can ease the asymmetric information and associated monitoring costs for investors, thus reducing the bond yield spread. More significantly, the yield spread depends on the type of investment project financed: risky growth projects are associated with a higher cost of funding

The chapter analyzes the financial policy of corporate bond issuers in the new Italian junior bond market specifically dedicated to unlisted firms and SMEs, using a proprietary firm-level dataset on 127 first-time mini-bond issuers across 2013–2017 years jointly with a control sample of around 5200 Italian private firms that have not issued corporate bonds across the same years. Since SME access to the debt capital market is largely considered a valuable source of debt funding diversification, especially for growth firms with a prominent exposure on bank debt, we test using OLS regressions whether bond issuers are able to reduce their financial vulnerability in comparison with similar nonissuers firms. The aim is to assess the extent to which the financial choices of SMEs regarding nonequity external funding can become a key factor in facing real and financial shocks like those triggered by the current pandemic Covid-19 outbreak. Our findings suggest that the access to the junior bond market is beneficial for the Italian unlisted companies in terms of a pronounced improvement in our financial fragility indicators.

The aim of this paper is to explore how debt contracts are affected by investment in asset specialization and by the dynamics of the secondary market for collateralized productive assets. Before applying for a loan, financially constrained firms face a specificity trade-off: asset specialization increases firms’ project returns, but decreases the liquidation value of assets in the secondary market if the firm is in financial distress. To study this trade-off, the paper uses a theoretical model in which the choice of asset specificity and the outcome of the secondary market for distressed firms’ assets are endogenous. High redeployability costs and a small number of participants in the secondary market are associated to low recovery values and to a high cost of debt. The paper shows the conditions under which financial constraints reduce firms’ incentive to invest in asset specificity.