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The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises

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  • Mizen, Paul
  • Tsoukas, Serafeim

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 China, Hong Kong, Indonesia, Korea, Philippines, Singapore and Thailand during 1995–2009 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 for financially constrained firms. Finally, when we examine the effects of the 1997–1998 Asian crisis and the 2007–2009 global financial crisis, we find that the sensitivity of the premium is greater for constrained firms during the Asian crisis compared to other times.

Suggested Citation

  • Mizen, Paul & Tsoukas, Serafeim, 2012. "The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3048-3059.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:11:p:3048-3059
    DOI: 10.1016/j.jbankfin.2012.07.005
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    Cited by:

    1. Mohapatra,Sanket & Nose,Manabu & Ratha,Dilip K., 2016. "Impacts of sovereign rating on sub-sovereign bond ratings in emerging and developing economies," Policy Research Working Paper Series 7618, The World Bank.
    2. Jonathan A. Batten & Karren Lee-Hwei Khaw & Martin R. Young, 2014. "Convertible Bond Pricing Models," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 775-803, December.
    3. Udichibarna Bose & Ronald McDonald & Serafeim Tsoukas, 2016. "Policy initiatives and Örmsíaccess to external finance: Evidence from a panel of emerging Asian economies," Working Papers 2016_18, Business School - Economics, University of Glasgow.
    4. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of firm size on the leverage–performance relationship during the financial crisis of 2007–2009," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 1-29.
    5. Paul Hallwood & Ronald MacDonald, 2014. "Picking The Right Budget Constraint For Scotland," Working Papers 2014_18, Business School - Economics, University of Glasgow.
    6. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Education and the local equity bias around the world," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 65-88.
    7. Özgür Arslan-Ayaydin & Chris Florackis & Aydin Ozkan, 2014. "Financial flexibility, corporate investment and performance: evidence from financial crises," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 211-250, February.
    8. Holger Görg & Marina-Eliza Spaliara, 2014. "Exporters in the Financial Crisis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 228(1), pages 49-57, May.
    9. Udichibarna Bose & Ronald MacDonald & Serafeim Tsoukas, 2014. "Policy initiatives and firms access to external finance: Evidence from a panel of emerging Asian economies," Working Papers 2015_01, Business School - Economics, University of Glasgow.
    10. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Education and the local equity bias around the world," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-76, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2014. "The role of education in equity portfolios during the recent financial crisis," SIRE Discussion Papers 2015-26, Scottish Institute for Research in Economics (SIRE).
    12. repec:bis:bisifc:45-13 is not listed on IDEAS
    13. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    14. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Policy initiatives and firms' access to external finance: Evidence from a panel of emerging Asian economies," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-65, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Joseph P. Byrne & Marina-Eliza Spaliara & Serafeim Tsoukas, 2016. "Firm Survival, Uncertainty, And Financial Frictions: Is There A Financial Uncertainty Accelerator?," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 375-390, January.
    16. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2014. "The role of education in equity portfolios during the recent financial crisis," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-26, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Shim, Ilhyock & Zhu, Haibin, 2014. "The impact of CDS trading on the bond market: Evidence from Asia," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 460-475.
    18. Kühl, Michael, 2014. "The financial accelerator and market-based debt instruments: A role for maturities?," Discussion Papers 08/2014, Deutsche Bundesbank.
    19. Byrne, Joseph P & Spaliara, Marina-Eliza & Serafeim, Tsoukas, 2014. "Firm survival, uncertainty and financial frictions: Is there a financial uncertainty accelerator?," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-62, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Ding Ding & Waikei R Lam & Shanaka J Peiris, 2014. "Future of Asia’s Finance; How Can it Meet Challenges of Demographic Change and Infrastructure Needs?," IMF Working Papers 14/126, International Monetary Fund.

    More about this item

    Keywords

    Financial constraints; External finance premium; Asian markets; Financial crises;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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