Trends in Corporate Borrowing

Corporate borrowing has substantially changed over the last two decades. In this article, we investigate changes in borrowing of US publicly listed firms along trends in five key areas: ( a) the funding mix of firms and the importance of balance-sheet versus off-balance-sheet borrowing; ( b) the costs of corporate borrowing; ( c) trends in nonprice loan terms; ( d) the importance of banks versus nonbank institutional investors; and ( e) the purpose for corporate borrowing. We explore these trends graphically over the 2002–2019 period, provide a narrative for these trends based on the theoretical and empirical literature in the respective areas, and discuss some implications for the coronavirus disease 2019 (COVID-19) pandemic. Finally, we document these trends for firms in the Eurozone countries and delineate similarities and differences. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is March 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

The Dollar and Corporate Borrowing Costs

We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected in the dollar affect U.S. borrowing costs.

The impact of the ECB’s monetary policy on corporate borrowing costs

This paper examines the impact of the ECB’s monetary policy on corporate borrowing costs. We use an event study method to assess and compare the effects of both conventional and unconventional monetary policy on Germany and French corporate bond market (credit spreads). The sample of our research consists of daily data collected during the period from 04 January 1999 to 27 February 2015. This period spans the pre-crisis which begins when the ECB has launched the Economic and Monetary Union (EMU) and became responsible for the monetary policy in the euro area. We find significantly negative relation between conventional surprise and corporate credit spreads. Moreover, we find that a raise in German non-financial credit spreads and French credit spreads domestic in response to the SMP announcement. The OMT lowers the German non-financial credit spreads, while it raises German bank credit spreads and French corporate credit spreads both domestic and bund for two sectors. Finally, the LTROs are associated with a raise in corporate credit spreads. Our findings are confirmed in robustness checks by changing the non-standard monetary policy announcements with monetary policy event dummies used as one variable.

Anatomy of Corporate Borrowing Constraints*

Macro-finance analyses commonly link firms’ borrowing constraints to the liquidation value of physical assets. For U.S. nonfinancial firms, we show that 20% of debt by value is based on such assets (asset-based lending in creditor parlance), whereas 80% is based predominantly on cash flows from firms’ operations (cash flow–based lending). A standard borrowing constraint restricts total debt as a function of cash flows measured using operating earnings (earnings-based borrowing constraints). These features shape firm outcomes on the margin: first, cash flows in the form of operating earnings can directly relax borrowing constraints; second, firms are less vulnerable to collateral damage from asset price declines, and fire sale amplification may be mitigated. Taken together, our findings point to new venues for modeling firms’ borrowing constraints in macro-finance studies.

6. Raising capital: debentures: fixed and floating charges

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter discusses corporate borrowing through debentures or debenture stock, as well as fixed and floating charges that companies issue to creditors as security interests. It begins by outlining some important distinctions between the ability of small and large companies to raise loan capital. It then considers the priority of secured creditors and the registration requirements for charges, the issue of whether or not a fixed charge could be created over a company’s book debts, provisions for automatic crystallisation that converts the floating charge into an equitable fixed charge over company assets, and reform of security interests.

Corporate bonds or bank loans? The choice of funding sources and information disclosure of Polish listed companies

The paper aims to find what determines the choice of companies listed on the Warsaw Stock Exchange (WSE) between public debt (corporate bonds) and private debt (bank loans). For this purpose, we estimate logistic regression models and panel models of corporate borrowing determinants to compare the impact of enterprise characteristics on financing with the use of corporate bonds or bank loans. In this study, we are interested in explanatory variables that explain the role of transparency measured by the level of information disclosure; and a risk proxy of the variability of operational cash flows and investment risk (retrieved from generalised auto-regressive conditional heteroscedasticity [GARCH] models estimated on companies’ stocks [shares] trading on the WSE).