Corporate Financing Choices after the 2007-2008 Financial Crisis

Abstract

This paper analyzes the factors that affect the probability of a new borrower choosing between structured debt financing (SF) and straight debt financing (SDF), using a sample of 12,075 Western European loan and bond issues closed during the 2000-2011 period. We find that borrowers choose SF when they seek long-term financing and a reduction in the funding costs. Our results document that floatation costs, information asymmetry, and renegotiation and liquidation risk affect the non-financial firms’ debt financing choice. We also find that financial institutions choose asset securitization when they want to raise relative larger amounts of debt and improve its economic performance. However, our analysis does not provide evidence supporting the hypotheses regarding the transfer of credit risk and regulatory capital arbitrage. In line with mainstream security design literature, our overall results show that SF transactions allow the reduction of the deadweight costs associated with asymmetric information problems, and principal-agent conflicts.