Public Debt, Bank Debt and Non-bank Private Debt and Firm Characteristics Among Taiwanese Listed Companies

Abstract

This study examines the relationship between the corporate debt ownership structure and various corporate financial characteristics in Taiwan. The results show that differences in terms of financial characteristics exist among firms that are financed by a bank debt, public debt, or non-bank private debt capital structure. Firms holding bank debt always borrow a large proportion of their total debt from the public market. This phenomenon is inconsistent with the argument that the reputation of firms with access to public debt is a substitute for bank monitoring. However, the use of bank debt implies certain benefits in terms of establishing a reputation that makes it easy for firms to access the public market. Furthermore, the use of bank debt cannot increase monitoring efficiency and result in higher leverage than in the case where bank debt is not used. Reputable firms will not hold higher levels of bank debt. Interestingly, firms predominantly using bank debt tend to be younger than firms that use other kinds of debt. Firms that predominantly use public debt have a significantly lower Tobin's q than firms with different debt patterns. This study finds that the determinants of debt ownership remain similar after the maturity effects of debt ownership are removed, implying that the firm debt ownership decision and debt maturity decision may be separable.