1. What determines debt structure in emerging markets: Transaction costs or public monitoring?
- Author
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Abhinav Goyal and John W. Goodell
- Subjects
Economics and Econometrics ,Transparency (market) ,media_common.quotation_subject ,Emerging markets ,Monetary economics ,National culture ,Structural equation modeling ,Individualism ,Debt structure ,Debt ,0502 economics and business ,Economics ,050207 economics ,media_common ,Uncertainty avoidance ,Finance ,Transaction cost ,050208 finance ,Transaction costs ,business.industry ,Bond ,05 social sciences ,Relationship financing ,Corporate bonds ,Public monitoring ,business - Abstract
We examine the predilection for private bonds over bank financing (debt structure) for emerging markets within the frameworks of both transaction cost economics and a transparency explanation, emphasizing the distinction between public monitoring (bonds) and private monitoring (banks), as well as considering the influence of national culture on institutions. Employing several tests, including structural equation modeling, we find, among many results that in emerging markets bonds are preferred over bank loans when there is less corporate opacity and fewer foreign access restrictions, as well as in environment of greater political instability, transaction cost, and limits to legal protection. Bonds are also favored over banks in cultural environments of greater uncertainty avoidance, masculinity, long-term orientation, and indulgence and less individualism. Overall, we attribute our results to culture and institutional quality together influencing debt structure, particularly by impacting attitudes toward public monitoring. Our results will be of great interest to researchers interested in the legal, social, and cultural environments of emerging markets.
- Published
- 2018