Debt specialisation and diversification: International evidence

We uncover a strong U-shape in bond financing by US firms. Firms with total debt in the range of $10 million to $100 million tend to use much less bond financing relative to loan financing than do firms with more or less total debt. There is no corresponding U-shape in less-developed Asian markets, while the advanced markets of Hong Kong SAR and Korea are in the middle. These patterns, and more generally the cross-firm variation in firms' use of bond financing relative to financing through loan facilities, are largely unrelated to either credit quality or monitoring effectiveness. This suggests that market segmentation is more likely. Finally, we find evidence of debt diversification by highly-leveraged firms.