Debt specialization and diversification: International evidence

We study empirically firms’ choices for debt financing, emphasizing the extensive and intensive margins of a firm’s bond financing ratio: the ratio of bond debt, both publicly traded and privately placed, to the sum of its loan and bond debt. The large data sample includes firms located in the US and nine Asian emerging markets, with total debt levels ranging from very large (billions of dollars) to small (less than a million dollars). The surprising results include a strong nonmonotonic relation between total debt and the bond financing ratio for US firms, contrasted with a largely monotonic relation for firms located in emerging markets. We also show that highly leveraged firms tend to borrow through both loans and bonds, indicating a preference for funding diversification.