Corporate Bond Use in Asia and the United States

We examine the determinants of Asian firms' decisions to participate in the corporate bond market and the determinants of the magnitude of bond debt for firms that do issue bonds. We compare the behaviour of Asian firms with US firms and investigate what drives differences in their financing decisions. We also analyse how firms alter their mix of bank and bond debt as their demand for cash varies. Our results show that firm characteristics account for only a very small portion of the difference in corporate bond use between Asian and US firms. Asian firms are simply less likely to issue bonds than US firms. The wedge in bond use between US and Asian firms is primarily driven by the likelihood that a firm issues bonds, rather than the magnitude of bond debt conditional on issuance. These results point to weak infrastructure, ie markets and institutions, as an important factor behind much of the lower use of bond financing in Asia. However, while policies aimed at facilitating the use of bond debt by Asian firms may result in increased bond issuance, it may not necessarily give firms more flexibility in meeting their financing needs. Even firms with a substantial presence in the corporate bond market primarily adjust their bank debt rather than their bond debt as demand for cash varies.