Evidence On The External Finance Premium From The US And Emerging Asian Corporate Bond Markets

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Executive Summary

Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds especially for the emerging Asian market. In this paper, the authors hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for the United States, Hong Kong, China, Korea and Thailand during 1995-2005 they find that firms with better financial health face lower external finance premia in all countries.

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