Do internationally cross-listed non-US firms obtain more favorable terms for syndicated loans?
Purpose - The purpose of this paper is to study the impact of cross-listing and cross-listing location on the terms of the private debt of firms not located in the USA. Specifically, the paper examines the empirical relationship between three syndicated loan terms (pricing, maturity and amount) at loan initiation and the cross-listed status of the borrower (cross-listed in the USA, UK, through depository receipts or not at all), while (not) differentiating between the stage of economic development of the borrower's home country. Design/methodology/approach - The three loan terms are modeled as a simultaneous system of equations and are estimated on a very extensive sample of 3,883 observations. The impact of endogeneity biases due to the sequential choices to and where to cross-list are examined using the inverse Mill's ratios from a bivariate probit model. Findings - All else held equal, foreign borrowers that are cross-listed directly in the UK obtain loans with higher spreads, longer maturities and larger loan amounts if they are from economically developed countries. Borrowers from emerging economies pay lower spreads but receive shorter maturities on syndicated loans if cross-listed in the UK. Cross-listings in the USA are not associated with any significant differential impacts on the three loan terms. Originality/value - This paper makes an important contribution to the cross-listing and capital structure literatures by providing evidence that the net benefit from being cross-listed for one debt component of the cost of capital (i.e. syndicated loans) depends on the listing destination and upon whether or not the borrower is from an emerging economy. The paper provides practical guidance to corporate financial officers on the benefits of international cross-listing and the choice of cross-listing venues on the terms of private debt issues.
Volume (Year): 35 (2009)
Issue (Month): 7 (June)
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