Essays on the Cost of Debt Capital for Private Firms
Title: Essays on the Cost of Debt Capital for Private Firms
Author: VALENZUELA, Patricio
Series/Report no.: EUI PhD theses; Department of Economics
Since corporate investment is a key driver for economic growth, it is very important to find out what are the drivers of the cost of financing for private firms. In particular, this thesis studies the determinants of spreads of bonds issued by advanced and emerging market borrowers and the determinants of foreign-currency corporate credit ratings. Chapter 1 demonstrates that the impact of debt market illiquidity on corporate bond spreads is exacerbated with a higher proportion of short-term debt. This effect is present in both investmentgrade and speculative-grade bonds and is smaller in banks as they may have the support of a lender of last resort during periods of market illiquidity. The paper’s major finding is consistent with the predictions of structural credit risk models that argue that a higher proportion of short-term debt increases the firm’s exposure to debt market illiquidity through a ‘rollover risk’ channel. Although credit rating agencies have gradually moved away from a policy of never rating a corporation above the sovereign (the ‘sovereign ceiling’), it appears that sovereign credit ratings remain a significant determinant of corporate credit ratings. Chapter 2 examines this link using credit rating data for advanced and emerging economies over the period of 1995 to 2009. The results are consistent with a sovereign ceiling ‘lite’ policy or ceiling that is not an absolute constraint, but a limitation that tends to decrease corporate ratings when these ratings are above the sovereign rating. Finally, chapter 3 investigates the impact of capital account restrictions on spreads of corporate bonds issued in international markets by developed and emerging market borrowers. The main finding is that capital account restrictions on inflows significantly increase corporate bond spreads. A second main finding is that capital account restrictions on inflows matter a great deal more during times of financial distress.
Table of Contents:
-- Introduction 4 -- Chapter 1: Rollover Risk and Corporate Bond Spreads 5 -- The Theoretical Framework 8 -- Sample Characteristics and Data Description 9 -- Regression Analysis 18 -- Endogeneity 22 -- Conclusions 27 -- Chapter 2: Sovereign Ceilings “Lite”? The Impact of Sovereign Ratings on Corporate Ratings 41 -- Sovereign and Corporate Credit Ratings and the Sovereign Ceiling 44 -- Sample Characteristics and Data Description 47 -- Empirical Analysis and Main Results 50 -- Additional Robustness Checks 56 -- Conclusions 57 -- Chapter 3: Capital Account Liberalization and the Cost of Debt Capital for Private Firms 73 -- Sample Characteristics and Data Description 75 -- Regression Analysis 77 -- Endogeneity 79 -- Corporate Bond Spreads around Periods of Financial Distress 81 -- Conclusions 82
Defence date: 15 May 2012; Examining Board: Professor Elena Carletti, European University Institute (Supervisor); Professor Árpád Ábrahám, European University Institute; Professor Franklin Allen, University of Pennsylvania; Professor Jun Qian, Boston College.
Type of Access: openAccess