The choice of debt source for UK companies

This thesis presents an empirical investigation of the choice between different sources of debt finance based on a sample of UK non-financial companies listed on the London Stock Exchange FTSE350 between 2001 and 2008. New evidence is provided on (i) the importance of differentiating between syndicated and bilateral bank loans, and (ii) the impact that bankers sitting on the board of directors have on the borrowing firms' choice of debt source. The evidence presented in this thesis contributes to the large body of US research concerning a firm's choice of debt source. Initially, the study investigates what type of firm chooses to issue particular sources of debt, and why. The findings show that the primary determinant of a firm's choice of debt source is its ability to provide collateral to secure against its debt. Although there is no evidence of bank affiliation playing a significant role in driving access to the public capital markets or to syndicated loans in the UK, issuers of bilateral loans are found to be more likely to have an affiliation to a bank than issuers of public, syndicated bank or non-bank private debt. Secondly, the study examines the stock market response to announcements of public, bank (both syndicated and bilateral), and non-bank private debt. The results provide no evidence of any abnormal stock market response following announcements of either public bonds or non-bank private debt. There is strong evidence of a positive market response to announcements of bank loans, driven by the positive market response to syndicated loans. There is little evidence of any market response to announcements of bilateral loans. The market appears to view announcements of syndicated loans made by companies which have a banker on their board in a positive manner, but no such response is observed for announcements of bilateral loans.This thesis presents an empirical investigation of the choice between different sources of debt finance based on a sample of UK non-financial companies listed on the London Stock Exchange FTSE350 between 2001 and 2008. New evidence is provided on (i) the importance of differentiating between syndicated and bilateral bank loans, and (ii) the impact that bankers sitting on the board of directors have on the borrowing firms' choice of debt source. The evidence presented in this thesis contributes to the large body of US research concerning a firm's choice of debt source. Initially, the study investigates what type of firm chooses to issue particular sources of debt, and why. The findings show that the primary determinant of a firm's choice of debt source is its ability to provide collateral to secure against its debt. Although there is no evidence of bank affiliation playing a significant role in driving access to the public capital markets or to syndicated loans in the UK, issuers of bilateral loans are found to be more likely to have an affiliation to a bank than issuers of public, syndicated bank or non-bank private debt. Secondly, the study examines the stock market response to announcements of public, bank (both syndicated and bilateral), and non-bank private debt. The results provide no evidence of any abnormal stock market response following announcements of either public bonds or non-bank private debt. There is strong evidence of a positive market response to announcements of bank loans, driven by the positive market response to syndicated loans. There is little evidence of any market response to announcements of bilateral loans. The market appears to view announcements of syndicated loans made by companies which have a banker on their board in a positive manner, but no such response is observed for announcements of bilateral loans