What Influence Firms to Issue International Bond? An Empirical Study of Relationships between Bond Financing and Firms' Financial Characteristics

Abstract

In the UK, the share of the international bonds rocketed while the share of government and domestic corporate bonds dropped significantly over the last 10 years. This paper investigates the firm specific factors behind the motivation of issuance of international bonds for the sample of Euro market non-financial bond offerings of UK domiciled firms and uses a sample of domestic corporate bond issuing non-financial UK firms for comparison of these factors. Firm-specific variables are examined based on the determinants of debt choice for both types of firms, namely flotation costs hypothesis, liquidation and renegotiation concerns, asymmetric information, reputation, profitability, growth options and market conditions. To motivate the empirical analysis, a theoretical framework based on the model of financing in international debt markets is employed and used to examine the probability of issuing international bonds by sample firms. The model is further tested using statistical t-tests. Results of this study indicate that international bonds issuing firms are significantly larger in terms of issue size and firm size than firms which issues domestic bonds. This implies that a flotation cost is a concern for an international bond issuing firms. They are high growth firms, and also tend to have higher financial leverage, better liquidation value and stronger reputations than domestic bond issuing firms. The market conditions also seem to provide a favourable opportunity for UK firms to reduce issuing costs by issuing bonds in the international market.