The Sources of Debt Matter, Too

47 Pages Posted: 8 Nov 2004

See all articles by Yang Liu

Yang Liu

California State Polytechnic University, San Luis Obispo - Finance Area

Date Written: October 2004

Abstract

This paper examines the effects of bank loans, loans from non-bank financial intermediaries, and unused bank credit lines on firm cash holdings, equity risk, and investment. Firms with more bank loans have more cash and investment, but lower equity risk. Firms with more non-bank private debt have lower equity risk and less investment. Firms with more unused credit lines have less cash and lower equity risk, but greater investment. Results suggest that depending on type, private debt mitigates the information asymmetry or asset substitution problem, or both. Results also imply that deposit relationships associated with commercial bank borrowing attribute to banks' information advantage.

JEL Classification: G20, G32

Suggested Citation

Liu, Yang, The Sources of Debt Matter, Too (October 2004). Available at SSRN: https://ssrn.com/abstract=614625 or http://dx.doi.org/10.2139/ssrn.614625

Yang Liu (Contact Author)

California State Polytechnic University, San Luis Obispo - Finance Area ( email )

College of Business
San Luis Obispo, CA 93407
United States

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