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Evidence on the External Finance Premium from the US and Emerging Asian Corporate Bond Markets

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Author Info
Paul Mizen (University of Nottingham)
Serafeim Tsoukas (University of Nottingham)

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Abstract

Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds especially for the emerging Asian market. In this paper we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for the United States, Hong Kong, China, Korea and Thailand during 1995-2005 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity we show that financial variables appear to be both statistically and quantitatively more important in the Asian market than in the US. Finally, the premium is more sensitive to firm-level variables during credit crunches, recessions and sudden stops than other periods, with stronger effects for the Asian bond market.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 142008.

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Length: 28 pages
Date of creation: Jul 2008
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Handle: RePEc:hkm:wpaper:142008

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Related research
Keywords: Financing Constraints; External Finance Premium; Emerging Asian Markets;

Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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