Bond Market Access and Financial Leverage

Abstract: The Swedish corporate bond market has evolved into a viable choice of financing for Swedish firms. There has been a rapid growth of corporate bonds issues. Meanwhile, we see an increase in the leverage ratio for firms with bonds. Historically, the demand for leverage has been seen as a function of firm characteristics. However, more recent studies have emphasized on the importance of the supply side of capital and on market constraints. In the present study, we test if firms with bonds have a higher leverage ratio than firms with no bonds, and if firms with bonds use the public debt market as a complement rather than a substitute to the private debt market. We look at the demand and supply sides of leverage and how it differs whether firms have access to the corporate bond market or not. Our results indicate that firms with bonds have on average a higher leverage ratio than firms without bonds. We find that the real estate and the corporate services sectors are dominant for firms with bonds for the years 2010-2014. Our results indicate that firms in these sectors use the public debt market as a complement to bank debt.