Bank monitoring and the pricing of corporate public debt

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…

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PUBLIC DEBT GUARANTEES AND PRIVATE CAPITAL FLIGHT

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…

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