International bond market finance and the consequences of decoupling in profitability among larger firms. A Latin American story

Since the Global Financial Crisis developing economies, including those of Latin America, increased their reliance on foreign currency borrowing, making greater use of the international bond market. The non-financial corporate sector became the second most important issuer of debt. Using a data base comprising approximately 295 listed firms for the larger Latin American economies for the period 2013-2023, the paper shows that bond issuing firms account for a larger share of total assets, revenue and investment expenditure relative to non-bond issuing firms. These findings are reproduced for nine sectors of economic activity (agriculture, construction, information, manufacturing, mining, retail trade, transportation, utilities, wholesale trade). In addition, bond issuing firms exhibit higher and increasing levels of profitability in most sectors. This favourable context for bond issuing firms and the decoupling in profitability has not led to increased investment expenditure. This is explained by overleveraging and prioritizing financial over investment in productive activities.