A study of bank debt on an international level

• Main Authors: Neo, Candice Bao Yue, Lim, Georgina Ru Qun, Ong, Vicky Ling
• Other Authors: Nanyang Business School
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/51335
• Institution: Nanyang Technological University

This paper examines debt structure employed by publicly listed international firms using a comprehensive database. A sample of 140,190 firms from 109 countries during the period 2001 to 2010 is used, so as to examine the effects of the 2008 financial crisis on debt structure. Across countries, debt specialization is a widespread phenomenon, and the common preference is to utilize bank debt. Explanations for such phenomena are sought, and benefits of utilizing bank debt over public debt financing are studied. Country-level determinants financial market development and corporate governance are documented to be negatively related with bank debt use, while accountability is positively related with bank debt use. In examining the effect of bank debt on firm performance, bank debt use is positively related with profitability and innovation, but is negatively related with the firm’s market-to-book ratio. In studying firm policies, dividend policy is observed to be negatively related with bank debt use, while cash-holding policy and investment policy are positively related with it. The manner in which firm-level determinants affect firm-related measures during the financial crisis is also examined in this paper, where firm-related measures are bank debt usage, market-to-book ratio and investment changes. It was found that before and after the crisis, bank debt levels generally decreased across countries. Book leverage, profit, cash-holding and book size determinants are found to be significant in causing change in bank debt before and after the crisis. Market-to-book ratio generally decreased during the affected period and significant variables that cause change in the ratio include book leverage, profit, investment, cash-holding, book size and bank debt. Lastly, investment generally decreased before and after the crisis. The significant variables found to have an impact on investment before and after crisis are cash-holding and tangibility determinants.