تصمیم گیری برای ورود اولین بار به بازار اوراق قرضه عمومی: نقش نام تجاری شرکت، انتخاب منابع مالی، و روابط بانکی

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 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.

There appears to exist a “life cycle” effect in firms’ funding choices: they borrow initially from banks and only later they choose to issue debt directly in the market. Further, some firms undertake their bond IPO at an early stage of their life, others wait a long period of time before they issue their first public bond, and others yet never issue public bonds. In this paper, we investigate what determines the timing of a firm’s decision to undertake its bond IPO. The early theoretical literature on financial intermediation, including Diamond, 1984 and Boyd and Prescott, 1986, shows that bank loans can be the firm’s optimal choice of funding. Subsequently, researchers expanded this literature to explain the coexistence of bank and bond financing.1 However, they paid little attention to the firm’s decision to first access the bond market. An exception is Diamond (1991), who presents a theory which shows that firms, by borrowing repeatedly from banks, can build their reputation and use it to access the bond market under favorable terms. The empirical literature on firms’ choices of external funding sources has also devoted little attention to the timing of firms’ decision to enter the public bond market. A strand of this literature investigates firms’ use of bank and bond financing using cross-sections of firm data and, therefore, does not consider firms’ decision to enter the bond market.2 Studies of firms’ marginal financing choices, on the other hand, do not take into account firms’ bond issuance history and, consequently, do not investigate their decision to enter the public bond market for the first time.3 In this paper, we add to this literature by investigating the determinants of the timing of firms’ bond IPOs using data on US non-financial firms.4 This is an important decision in a firm’s life because it will transform the firm. Entering public bond market changes the firm’s capital structure and marks the beginning of coverage by bond analysts and credit rating agencies.5 Following Diamond’s (1991) reputational theory, we study the role of a firm’s reputation on the timing of its bond IPO. According to Diamond’s theory early in their life firms borrow from banks, but as they develop a reputation, high and low credit quality firms start to issue bonds. We also investigate the insights of the corporate finance literature that are likely to affect the timing of a firm’s bond IPO. For example, Berlin and Loyes, 1988, Chemmanur and Fulghieri, 1994 and Cantillo and Wright, 2000 show that firms with a greater likelihood of financial distress prefer bank funding over market funding because of banks’ special monitoring and reorganizational skills. This suggests that firms with higher credit risk are more likely to delay their entry to the public bond market. Rajan’s (1992) result that hold up costs increase with the credit risk of the firm, on the other hand, suggests that firms with the highest credit risk have the highest incentive to enter the public bond market. Following these results, we investigate how the credit risk of the firm affects the timing of its bond IPO. The literature that links firms’ relative use of public bond financing to the flotation costs of public bonds is also potentially relevant for a firm’s decision to enter the public bond market. Blackwell and Kidwell, 1988 and Krishnaswami et al., 1999 and Easterwood and Kadapakkam (1991), for example, argue that high flotation costs of public placements make public bond financing unattractive for firms with small needs for external funding. Since these costs are not proportional to the size of the issue, this suggests that larger firms are more likely to enter the public bond market earlier. Following this literature, we investigate the importance of firm size and its demand for external funds in the timing of its bond IPO. The literature on equity IPOs shows that firms time their equity IPOs to take advantage of favorable market conditions, suggesting that firms may also take into account the conditions in the bond market when making their decision to enter the public bond market.6 We, therefore, investigate whether the activity in the bond market or the state of the economy affect the timing of bond IPOs. Finally, we investigate whether firms’ prior funding choices and their relationships with banks play a role on the timing of their bond IPOs. In addition to straight bank loans and public bonds, US firms can also use private bond placements and syndicated loans to raise external debt financing. These instruments have some similarities with public bonds. For example, they introduce some competition for the provision of funding to the firm and spread the firm’s funding among many investors. This suggests that firms which use private bond placements or the syndicated loan market to raise funding may delay their decision to enter the public bond market. It is possible, though, that firms access to these markets accelerate their entry to the public bond market. Firms may, for instance, use the private bond market to advertise themselves to investors in order to facilitate first public bond placement. They may also use privately placed bonds and the syndicated loan market to establish relationships with investment banks. These relationships will make it easier for firms to enter the public bond market because they will facilitate the certification role that underwriters need to play in the public bond placement.7 Investment banks, in turn, may use their contact with firms to “motivate” them to enter the public bond market in order for them to benefit from the associated underwriting business.8 We find that, everything else equal, firms that are more creditworthy, larger, have more investment opportunities, or less liquidity, undertake their bond IPOs earlier. We also find that firms with access to the syndicated loan and private bond markets enter the public bond market earlier. Interestingly, when we isolate the private bonds issued under Rule 144A, which makes them more similar to public bond, we find that issuing these bonds actually delays a firm’s entry to the public bond market. Further, we find that firms’ relationships with investment banks through prior private bond placements or a syndicated loan speed up firms’ entry to the public bond market. In addition, our results show that firms time their bond IPOs to avoid recessionary periods. Finally, our investigation into the role of a firm’s reputation on the timing of their bond IPOs produces results consistent with Diamond’s (1991) theory. In particular, we find that the firm’s reputation as defined by the history of the its Z-score, has a “U-shaped” effect on the timing of the first public bond issue: firms with best and worst reputation enter the public bond market faster than do firms with intermediate reputation. The remainder of our paper is organized as follows. The next section presents our methodology and data. This section also characterizes our sample of firms. Section 3 describes the results of our survival analysis of the timing of a firm’s decision to undertake is bond IPO. Section 4 investigates the importance of firm reputation on the timing of its bond IPO. Section 5 discusses our robustness checks. Section 6 concludes the paper with some final remarks and suggestions for future research.

We have identified in this paper a set of determinants of the timing of firms’ bond IPOs, including the firm size, its demand for external funds, its credit risk, its prior funding choices and its relationships with investment banks. We have also shown that firms time their bond IPOs in order to avoid periods of recession. Finally, we have shown that firms in the middle range of reputation tend to access the public bond market for the first time later than firms that have either the best or the worst reputation, a finding we argue is consistent with the reputational theory put forth by Diamond (1991). These findings are important. As the equity IPO transforms a firm, so does its first issue of a public bond. The bond IPO will change the firm significantly not only with regards to the mix of its funding sources and ability to renegotiate its debt, but also with respect to the additional scrutiny that it will become subject to coming from bondholders, bond analysts and credit rating agencies. This suggests that an investigation of the effects of entering the public bond market on such things as the cost of the alternative sources of external funding as well as on firms’ relative use of these funding sources are fruitful areas for future research.