The choice between bank loans and public debt in the sustainability-linked debt market

Abstract

전통적으로 기업은 은행의 지대착취(rent extraction) 문제와 채권 계약의 비효율성을 고려하여 자본 조달 방식을 결정한다. 본 논문에서는 지속가능성연계부채 시장에서도 이러한 상충관계가 존재하는지 검증했다. 2017년부터 2021년까지 지속가능성연계채권과 지속가능성대출 표본을 이용하여, 기업의 채권 약정이 대출 약정보다 더 세분화되어 공개되며 엄격한 방식으로 작성됨을 확인했다. 기존 문헌과 마찬가지로 기업 규모 역시 지속가능성연계대출보다 지속가능성연계채권을 선호하는 것에 영향을 미치는 것으로 나타났다.

Conventionally, a firms choice between bank loan and public debt depends on the trade-off between enduring banks monopoly rent and inefficient bond covenants. Small and opaque firms tend to stay with the informed relationship banks despite the banks rent extraction threat, while large firms could borrow from the less informed arms- length creditors. I test whether such trade-off exists in the newly emerging sustainability- linked debt markets where borrowers environmental, social, and governance (ESG) profile uncertainty prevails. Using the novel sustainability-linked bonds (SLBs) and loans (SLLs) sample from 2017 to 2021, I confirm that bond covenants on the key performance indicators (KPIs) of the borrowers ESG activities are disclosed in a more granular and rigid fashion than loan covenants. The size of a firm as a proxy for the borrowers relative bargaining power against the bank is also related to the firms preference of SLBs over SLLs. Importantly, I find that SLL covenant intensity is U- shaped in the degree of banking relationship; with the repeated lending relationship, covenant intensity reduces but then increases as the borrowers concerns arise regarding the lenders monopolistic rent extraction. Large borrowers are more concerned with signaling their ESG commitment and tend to write intense covenants using third-party ESG ratings as KPIs. Overall, I confirm that conventional banking theory holds in ESG banking, which emerges as an important external financing venue in the era of rising ESG risks around the globe.