Debt Market Literature Review

Literature Review Despite the fact that there have been lots of existing research on discussing the development of debt market in East Asian countries, there are no any consensus on the reason why corporate bonds do not have high ratio of issuance of debt instrument in Hong Kong.

Function of corporate bond However, bond issuance is an important instrument in corporation’s raising fund. In Ma, Remolona and He (2006) states that the function of debt financing is important to firms borrow fund. The reason is that it can help improve the capital structures of companies, promote competition and encourage firms’ innovation so that companies can reduce the reliance on bank loans and lower cost of funding when competing with capital from equity

The research has defined two factors to examine whether these drivers are directly affecting the bond issuing of enterprises. The first factor is firm-specific factors such as firm growth, profitability, leverage and so on. The second element is market-specific factors, for instance, larger markets with greater liquidity will encourage firms to issue bonds in order to raise fund. Before starting to do the data collection, the researcher notice two important adjustments to make policy design to be useful in comparing Asian and Latin American debt markets. The first one is to separate the effect of firm-specific on firms’ decision to issue bonds from effect of market growth and liquidity. The second one is to adjust the covering period into 1995 – 2007. As a consequence, the research shows the above two variable are significant to influence the decision of firms in issuing bonds. Last but not least, the research also suggests rating agencies providing comprehensive information, the faster process of bond settlement and a well-developed price reporting mechanism may help promote corporate bonds’

In Goswami and Sharma (2011) explain that the reason why bank lending can dominate in Asian corporate financing market is because bank as a financial intermediation for financing is still a less expensive and more efficient source of corporate financing. However, after 2008 global financial crisis, firms start to be aware of the problem of over dependence on bank credit and rollover risk. In the past history of 1997 Asian currency crisis, corporates highly relied on bank lending so most of them suffered a