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How Do Firms Choose Their Lenders? An Empirical Investigation

Author

Listed:
  • Miguel Cantillo

    (University of California, Berkeley)

  • Julian Wright

    (University of Canterbury, New Zealand)

Abstract

This article investigates which firms borrow directly from the capital markets and which raise funds through intermediaries. Our empirical results show that large companies with abundant cash and collateral tap the 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 cost of capital than bondholders

Suggested Citation

  • Miguel Cantillo & Julian Wright, 1998. "How Do Firms Choose Their Lenders? An Empirical Investigation," Finance 9803007, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:9803007
    Note: approx 40 pages
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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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