Banking liberalization and firms' debt structure: International evidence

Abstract

This paper analyzes the effect of banking liberalization on debt structure in a sample of firms in 37 developed and developing countries. Banking liberalization increases on average debt availability and reduces its maturity. Debt availability increases in countries with stronger supervision and lower protection of creditor and property rights. The reduction in debt maturity is greater in developed countries. The effect of banking liberalization also varies across firm size. Small firms in developed countries and large firms in developing countries benefit least from banking liberalization.

The Impact of Banking Sector Development on Capital Structure of Non-financial Sector Firms in Pakistan

“…Sometimes , due to information asymmetry , the benifts associated with developed financial market my decreased because banks have no proper approach to firms. The asymmetric information appendages its costs on both lenders and borrowers and they did not approach the true position of each other (González, 2014). Agca et.al (2013) have also presented in their study that transaction cost associated with borrowed funds decreased due to increased number of banks and banking sector reforms but at the same time it may leads to enrichment of financing cost due to improper handling of risk attached with it.…”

Market structure, institutional quality and bank capital ratios: evidence from developing countries

“…However, financial liberalisation may also have the opposite effect, that is, lower bank capital. This occurs usually in markets where information asymmetries and excessive risk-taking by banks exist and mostly in markets where efficient supervision is not available (Gonz alez and Gonz alez, 2014;Vithessonthi, 2014). In this type of market, efficient supervision is also absent.…”

Corporate debt maturity and future firm performance volatility

“…To build arguments for the impact of debt maturity on future firm performance volatility, we primarily draw upon related studies that examine under-and over-investment problems (see e.g., Aggarwal & Samwick, 2006;Aivazian, Ge, & Qiu, 2005;Bolton, Chen, & Wang, 2011;Butler, Cornaggia, Grullon, & Weston, 2011;Julio & Yook, 2012;Myers, 1977;Myers & Majluf, 1984). Our theoretical arguments are built upon prior studies related to debt maturity (see e.g., Barclay & Smith, 1995;Diamond, 1991;Fan, Titman, & Twite, 2012;Flannery, 1986;González & González, 2014;Jeon & Nishihara, 2015). Flannery (1986) earlier argues that when the same information about a firm's prospect is shared between insiders (e.g., managers) and outsiders (e.g., outside investors), the composition of debt will be priced in a way that causes the firm to be indifferent to the composition.…”