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The determinants of corporate debt ownership structure: Evidence from market‐based and bank‐based economies

Antoniou, Antonios; Guney, Yilmaz; Paudyal, Krishna


Antonios Antoniou

Yilmaz Guney

Krishna Paudyal


This paper aims to investigate the determinants of choice between private and public debt for British and German listed companies.

The paper is based on three strands of theories: the “liquidation and renegotiation” hypothesis; the “moral hazard and adverse selection” hypothesis; the “flotation cost” hypothesis. The regression analysis was adopted to test these hypotheses. The specific econometric method used for panel data is generalised method of moments (GMM).

The evidence records a few similarities in debt‐mix structure of German and UK firms but it also detects some important differences. Therefore, the paper concludes that the relation between dependent and explanatory variables is country‐dependent. This can be attributed to the differences in corporate governance mechanisms and institutional features of the countries.

Research limitations/implications
The limitation mainly has come from data unavailability for public debt. Future research could be to extend the number of countries to have a better idea for the impact of institutional factors on corporate debt‐mix.

Practical implications
The findings confirm that the debt ownership decision of listed firms is not only the result of their own characteristics but also the outcome of legal and financial environment and corporate governance traditions in which they operate. The way managers decide about the type of debt financing is not universal. Furthermore, the factors such as liquidation and renegotiation, moral hazard and adverse selection, flotation costs are found to be significantly relevant while deciding the mix of corporate debt.

This study offers a unique comparison of the evidence from a bank‐based economy (Germany) and a market‐based economy (UK) that should have direct implications on the choice between bank debt and public debt. Firms with a long‐run debt ownership target attain it through an adjustment process. The authors are not aware of any other study on debt ownership that controls for endogeneity using the GMM technique.

Journal Article Type Article
Publication Date Oct 17, 2008
Journal Managerial Finance
Print ISSN 0307-4358
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 34
Issue 12
Pages 821-847
APA6 Citation Antoniou, A., Guney, Y., & Paudyal, K. (2008). The determinants of corporate debt ownership structure: Evidence from market‐based and bank‐based economies. Managerial Finance, 34(12), 821-847.
Keywords Debts; Germany; United Kingdom; Public ownership; Private ownership; Debt financing
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Copyright Statement
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