How firms borrow in international bond markets: securities regulation and market segmentation

We investigate how firms in emerging economies choose among the different international bond markets: global, US144A and Eurobond markets. By exploiting the connection between the market of issuance and regulatory disclosure of information, we show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets, where regulation is lighter and information is less public. On the contrary, firms issuing global bonds – subject to full SEC requirements – are financially sounder and larger. This exercise also shows that, following the global crisis, firms are more likely to tap less regulated debt markets. The results are supported by descriptive evidence, univariate non-parametric analyses, and conditional and multinomial logit analyses. To research the issue, we have constructed a novel dataset containing information on firms’ debt securities issuance and their financial accounts for the period 2000-2014. To account for firms’ complex structures, we look at the balance sheet of the guarantor of debt, which need not be the issuing company. The dataset comprises 3,944 debt securities, guaranteed by firms of 36 emerging economies, which amount to a total of 1.2 USD trillion in debt issued.