Loan versus Bond Financing of Czech Companies and the influence of the Global Recession
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Date
2017
Journal Title
Journal ISSN
Volume Title
Publisher
Tomas Bata University in Zlin
Abstract
European economies are traditionally considered to be bank based regarding the debt financing. However, in times of crises in the bank sector, this feature may indicate a weakness of these
economies when the credit squeeze phenomenon may occur and companies’ competitiveness
might be negatively affected thanks to unstable financing possibilities. In such conditions, a shift
from bank loans to bonds might be expected. That is why this paper focuses on mutual development of corporate bond and business loan markets in the developing Czech economy in the years
2006–2014 with regard to the impacts of the global financial crisis of 2008/2009. The main goal
of this article is to identify whether, thanks to the impacts of the global recession in 2009, there
was a shift in Czech economy in business financing from the loans to bonds in a similar fashion
as in the case of East Asian economies after their financial crisis in the nineties. Since Czech
companies practically do not use short-term bonds, a mutual relationship is examined between
amounts of long-term corporate bonds and economic development captured by the GDP per
capita, and between long-term business loans and development of long-term corporate bonds.
The main findings of this study are that since the global financial crisis, bond financing of businesses has been growing faster than loan financing. Czech economy thus shifts and becomes
more bond market-based. The development of bond financing is positively correlated with the
GDP per capita. Time series of both loans and bonds develop along the same trend. However,
residual components are correlated negatively, which confirms the standing of loans and bonds
as substitutes. Two main practical implications may be derived from this study. First, a growing
usage of bonds increases demands on the market regulator, especially in the field of monitoring.
Second, the growing bond market leads to the increased effectiveness, which makes additional
effective sources of finance available to businesses and makes Czech economy more competitive
even in times of difficulties in the banking sector.
Description
Subject(s)
corporate finance, corporate governance, liabilities, bonds, loans, financial crisis, recession, capital market development, corporate finance, corporate governance, liabilities, bonds, financial crisis, recession, capital market development, loans
Citation
ISSN
1804-171X