Where do firms issue debt? An empirical analysis of issuer location and regulatory competition in Europe

Abstract

In this article, we study the choice of issuer location and regulatory competition in the European corporate debt market. We fi nd that, in absolute terms, Germany has by far the highest outfl ow of debt issues, while the Netherlands, the UK, Luxembourg and Ireland see the most infl ows (in that order). We use a panel gravity model to investigate country specifi c factors attracting foreign subsidiaries as issuer. The data clearly support the prediction that the locational choice is positively infl uenced by a low withholding tax rate. There is also some evidence that corporate tax rates play a role. We do not fi nd support for creditor protection rules in bankruptcy as a driver of cross-border debt securities issues. Hence, countries who wish to attract issuers are well-advised to reduce their withholding tax rates -creditor rights seem not to matter.

Cross-border LBOs

“…Haselmann et al (2010) show that almost all corporate debt issues are raised locally, even when the issuers are multinational firms. Eidenmuller et al (2010) explain that creditor protection rules embodied in corporate law and bankruptcy law are governed by the jurisdiction in which the issuer is located, and not where the issuer is located or some other sponsor such as a PE sponsor. Choice of law clauses can be used in contracts, and as such contract law will not be important for the location of the issuers (Eidenmuller et al, 2010).…”

“…Eidenmuller et al (2010) explain that creditor protection rules embodied in corporate law and bankruptcy law are governed by the jurisdiction in which the issuer is located, and not where the issuer is located or some other sponsor such as a PE sponsor. Choice of law clauses can be used in contracts, and as such contract law will not be important for the location of the issuers (Eidenmuller et al, 2010). Choice of law clauses can only impact creditor protection rules if the underlying assets have been transferred to the choice jurisdiction (Eidenmuller et al, 2010;Haselmann et al, 2010).…”

“…Choice of law clauses can be used in contracts, and as such contract law will not be important for the location of the issuers (Eidenmuller et al, 2010). Choice of law clauses can only impact creditor protection rules if the underlying assets have been transferred to the choice jurisdiction (Eidenmuller et al, 2010;Haselmann et al, 2010). As such, in countries with poor creditor rights, debt financing is comparatively more difficult, and the bank loans are often more expensive as well (Qian and Strahan 2007;Bae and Goyal, 2009).…”

Market standards in financial contracting: The Euro’s effect on debt securities

“…The present paper is concerned with the contract law governing the loan, where contract law refers to the contract-related legal rules of a sovereign state or a territorial unit of it (such as the states in the U.S. or England as a separate jurisdiction within the UK). Before considering the applicable contract law more closely, one should note that it is only one of many legal and regulatory aspects of debt securities (Eidenmüller et al, 2015): The issuer is subject to corporate law and, especially in financial distress or insolvency, to bankruptcy law; corporate and bankruptcy law can attach to different jurisdictions. For business primarily in the Netherlands.…”

“…To pursue the example further, the Danish issuer could have the securities listed at the Luxembourg exchange, thereby becoming subject to Luxembourg securities regulation and, potentially, the jurisdiction of the Luxembourg financial markets regulator. The tax treatment of the debt securitiessuch as a withholding tax on interest payments-is still another matter that turns on the issuer's tax residence so that, in the example, Danish or Dutch tax law could apply (Eidenmüller et al, 2015). The applicable contract law governs the loan contract underlying the debt security, often referred to as the ''indenture."…”