Proprietary costs: Why do R&D-active firms choose single-lender financing?

We examine whether proprietary costs drive R&D-active firms’ choice of private loan structure. We find that R&D-active firms are more likely to choose single-lender over multi-lender private loan financing. This is consistent with the theory that high-ability entrepreneurs protect their proprietary knowledge by communicating it to a single lender while disclosing generic and less sensitive information to the public. This propensity, however, significantly decreases after the enactment of the American Inventor’s Protection Act (AIPA), which accelerated public disclosure of firms’ patent details in filings with the US Patent and Trademark Office. This accelerated public disclosure potentially caused R&D information to spill over to rivals, increasing the proprietary costs of single-lender borrowers. AIPA enactment also increased the spread on R&D-active firms’ single-lender loans. These findings contribute to the voluntary disclosure and financing-choice literature by linking R&D-active firms’ choice of single-lender financing to the proprietary costs of public disclosure.

Debt Market Trends and Predictors of Specialization: An Analysis of Pakistani Corporate Sector

Recently, debt structure research has started focusing on the strategic perspective of financing choices, particularly to understand the reasons for debt specialization (DS). This paper examines trends of specialization over time and industry by using a comprehensive dataset on types of debt employed by the public limited companies during 2009–2018. The objective of the current study is to analyze the effect of debt market conditions by identifying significant predictors of DS. Time-series and cross-sectional results confirm the existence of DS, which is further validated by the findings of the cluster analysis. The empirical results indicate that overall, 61% of the companies solely rely on a single type of debt, mostly on short-term obligations accompanied by long-term secured and other debts. Moreover, small, mature, rated, group-affiliated, and low-leverage companies incline more towards this strategy. Credit rating, debt maturity, financial and interest coverage ratios serve as the primary determinants of the debt market that are significantly associated with the measures of DS. The results contribute to the capital structure literature by specifying that financing choice has an important implication in deciding the debt structure composition of the organizations.

Role of Business Age, Scale & Risk in Debt Financing Choices for the Pakistani Textile & Apparel Industry

The motivation for this research enquiry is to identify the role of the business age, size and risk for the choice of debt financing in the textile and apparel sector of Pakistan along with other controlled factors. The textile and apparel sector of Pakistan comprises 464 listed entities as the targeted population while the study randomly finalized 60 firms as the sample after carefully analyzing the required information from the financial statements during the annual revenue streams of 2013-2019. The predicted variable for this research enquiry is measured by short, long and total-debt ratios while the predictor variables include the business age, firm’s scale and risk. In addition, the research includes tax shield, tangibility, liquidity, profitability, and growth as the controlling factors. The study estimated that the choice of total-debt ratio is strongly affected by business age, size and risk along-with tax shield, tangibility, liquidity and profitability while the choice of short-term debt ratio mainly depends upon the firm’s scale and age along with the tax shield. In addition, the choice of long-term debt ratio is strongly explained by the firm’s scale and age along with the tax shield, liquidity and profitability. The estimated evidence provides management with the implications for the textile and apparel sector of Pakistan to consider as significant factors in deciding the debt financing choice of this sector. The estimated evidence of this research enquiry applies to the non-financial textile sector only and cannot be generalized to the financial sector. Future research may enhance the financing choice towards the inclusion of equity financing with the same set of variables.