The Decision to First Enter the Public Bond Market: The Role of Firm Reputation, Funding Choices, & Bank Relationships

Posted: 23 Jan 2008 Last revised: 15 Jan 2021

See all articles by Galina Hale

Galina Hale

University of California, Santa Cruz

João A. C. Santos

Federal Reserve Bank of New York; Nova School of Business and Economics

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Abstract

This paper uses survival analysis to investigate the timing of a firm's decision to issue for the first time in the public bond market. We find that firms that are more creditworthy and have higher demand for external funds issue their first public bond earlier. We also find that issuing private bonds or taking out syndicated loans is associated with a faster entry to the public bond market. According to our results, the relationships that firms develop with investment banks in connection with their private bond issues and syndicated loans further speed up their entry to the public bond market. Finally, we find that a firm's reputation has a "U-shaped" effect on the timing of a firm's bond IPO. Consistent with Diamond's (1991) reputational theory, firms that establish a track record of high creditworthiness as well as those that establish a track record of low creditworthiness enter the public bond market earlier than firms with intermediate reputation.

Keywords: bond financing, reputation, bank relationships, duration analysis

JEL Classification: G24, G32

Suggested Citation

Hale, Galina and Santos, João A. C., The Decision to First Enter the Public Bond Market: The Role of Firm Reputation, Funding Choices, & Bank Relationships. Journal of Banking and Finance 32(9), 1928-1940, 2008., Available at SSRN: https://ssrn.com/abstract=1086422

Galina Hale (Contact Author)

University of California, Santa Cruz ( email )

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João A. C. Santos

Federal Reserve Bank of New York ( email )

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Nova School of Business and Economics ( email )

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