The impact of firm size on bank debt use |
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Authors: | Linda M. Hooks |
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Affiliation: | Department of Economics, Washington and Lee University, Lexington VA 24450, USA |
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Abstract: | I use a sample of US firms to examine the determinants of the concentration of bank debt in total debt. The results indicate that the factors vary by size of the firm. A small- to medium-sized firm has a high concentration of bank debt when it has a low level of discretionary spending. In contrast, a large firm has a high concentration of bank debt when it is difficult for outsiders to observe. The results support the Diamond [J Polit Econ 99 (1991) 689] reputation view that a firm faces different debt choices as it grows. When evaluating bank regulations, policymakers should consider the importance of the reputation-building services, which a bank provides to businesses. |
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Keywords: | Bank debt Business credit Asymmetric information Financial intermediaries Financing policy |
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