We examine whether the existence of a bank/Þrm relationship lowers the cost of public debt Þnancing. Using a sample of Þrst public straight debt o¤ers, we test the crossmonitoring e¤ect of bank debt and DiamondÕs (1991, Journal of Political Economy, 99, 689Ð721) reputation-building argument. We Þnd that the existence of bank debt lowers the at-issue…
This article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990. We find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the…
Significant amounts of private capital have flowed out of several of the more heavily indebted developing countries. This outflow, often called “capital flight,” largely escapes taxation by the borrowing-country government, and has generated concern about the prospects for future servicing of the debt. Imperfect contract enforcement may lead to implicit or explicit government guarantee of…
This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt…
