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Determinants of the development of corporate bond markets in Argentina: One size does not fit all

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Author Info

  • Roque B. Fernández
  • Sergio Pernice
  • Jorge M. Streb

Abstract

Conventional theory leads to expect bonds to be a financing vehicle for large firms because of economies of scale and contracting costs. We find both in our econometric evidence for firms quoted on Latin American stock exchanges, and in our survey results for Argentina, that size of assets is a robust determinant of the use of bond finance. This result, together with the fact that there are few firms that are large in terms of market value, can help understand why Argentina, as well as Latin America, has small bond markets in terms of the ratio of the stock of bonds to GDP. Since firm value represents the present value of the cash flows against which the firm borrows, the outstanding stock of corporate bonds is as small as the size of Argentine firms.

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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 348.

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Length: 1-25 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:cem:doctra:348

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Keywords: debt structure; leverage; short term debt; corporate bonds; firm size; firm value;

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References

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  1. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  2. Ricardo N. Bebczuk, 2005. "Corporate Governance and Ownership: Measurement and Impact on Corporate Performance and Dividend Policies in Argentina," Department of Economics, Working Papers 059, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
  3. Melnik, Arie & Plaut, Steven, 1986. " Loan Commitment Contracts, Terms of Lending, and Credit Allocation," Journal of Finance, American Finance Association, vol. 41(2), pages 425-35, June.
  4. Alejandro Bedoya & Roque Fernández & Celeste González & Sergio Pernice & Jorge M. Streb, 2007. "Corporate bonds, asset-backed securities and deferred checks in Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 347, Universidad del CEMA.
  5. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
  6. María Alegre & Sergio Pernice & Jorge M. Streb, 2007. "Determinants of the development of corporate bond markets in Argentina: survey to firms and investors," CEMA Working Papers: Serie Documentos de Trabajo. 345, Universidad del CEMA.
  7. Michael J. Barclay & Clifford W. Smith & Ross L. Watts, 1995. "The Determinants Of Corporate Leverage And Dividend Policies," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(4), pages 4-19.
  8. Blackwell, David W. & Kidwell, David S., 1988. "An investigation of cost differences between public sales and private placements of debt," Journal of Financial Economics, Elsevier, vol. 22(2), pages 253-278, December.
  9. Alejandro Bedoya & Celeste González & Sergio Pernice & Jorge M.Streb & Alejo Czerwonko & Leandro Díaz Santillán, 2007. "Database of corporate bonds from Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 344, Universidad del CEMA.
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Cited by:
  1. Endo, Tadashi, 2008. "Broadening the offering choice of corporate bonds in emerging markets : cost-effective access to debt capital," Policy Research Working Paper Series 4655, The World Bank.

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