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How Do Firms Choose Their Lenders? An Empirical Investigation

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  • Miguel Cantillo and Julian Wright.

Abstract

This article investigates which companies finance themselves through intermediaries and which borrow directly from arm's length investors. Our empirical results show that large companies with abundant cash and collateral tap credit markets directly; these markets cater to safe and profitable industries, and are most active when riskless rates or intermediary earnings are low. We show that determinants of lender selection sharpen during investment downturns and that there are substantial asymmetries in the way firms enter and exit capital markets. These results support a theoretical framework where intermediaries have better reorganizational skills but a higher opportunity cost of capital than bondholders. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Paper provided by University of California at Berkeley in its series Research Program in Finance Working Papers with number RPF-256-Rev.

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Date of creation: 01 Jan 2000
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Handle: RePEc:ucb:calbrf:rpf-256-rev

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  3. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
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  15. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
  16. Jeffrey K. MacKie-Mason, 1989. "Do Firms Care Who Provides their Financing?," NBER Working Papers 3039, National Bureau of Economic Research, Inc.
  17. 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.
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