The Corporate Choice between Public Debt, Bank Loans, Traditional Private Debt Placements, and 144A Debt Issues

The main purpose of this study is to examine the determinants of the corporate choice between different forms of debt financing. By analyzing the most comprehensive sample of U.S. corporate debt issues to date, I find that firms that issue 144A debt have significantly lower credit quality and higher information asymmetry than firms that issue traditional non-bank private debt. Further, the study shows that traditional private placements, rather than bank loans, are the favorite private debt source for firms with good credit quality. I also show that the firm characteristics of traditional private debt issuers have significantly changed after 1990 through to 2003. My results suggest the following pecking order of debt choices which is conditional on credit quality. High credit quality firms prefer public bond offerings and small firms, with good credit quality, are more likely to issue traditional private debt. A large group of firms characterized by moderate credit quality make extensive use of bank loans and poor credit quality firms preferentially issue 144A debt. JEL Classifications: G32; G21