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Brand capital and debt choice

Nurul Alam, Sabri Boubaker Orcid Logo, Xiaomeng Charlene Chen, Mostafa Monzur Hasan

International Review of Financial Analysis, Volume: 93

Swansea University Author: Sabri Boubaker Orcid Logo

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DOI (Published version): 10.1016/j.irfa.2024.103160

Abstract

This paper investigates the effect of brand capital on firms' choices of debt structure. Using a sample of publicly listed U.S. firms between 2001 and 2019, we find that firms with higher levels of brand capital rely less on bank debt financing. This finding is robust to the use of alternative...

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Published in: International Review of Financial Analysis
ISSN: 1057-5219 1873-8079
Published: Elsevier BV 2024
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URI: https://cronfa.swan.ac.uk/Record/cronfa67320
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Abstract: This paper investigates the effect of brand capital on firms' choices of debt structure. Using a sample of publicly listed U.S. firms between 2001 and 2019, we find that firms with higher levels of brand capital rely less on bank debt financing. This finding is robust to the use of alternative regression models and alternate measures of brand capital and bank debt financing. Employing an industry-level positive shock to brand capital as a quasi-natural experiment, we demonstrate that such a shock negatively affects firms' reliance on bank debt. Our cross-sectional analyses reveal that the effect of brand capital on bank debt is more pronounced for firms with high information asymmetry, weak corporate governance mechanisms, and poor financial conditions. We also find that brand capital-intensive firms raise funds from the public debt market and issue more (or less) unsecured (or secured) debt. Taken together, we show that brand capital has an important bearing on corporate financing decisions.
Keywords: Brand capital, debt choice, information environment, agency problems
College: Faculty of Humanities and Social Sciences
Funders: We gratefully acknowledge helpful comments and suggestions from the editor and four anonymous reviewers. We also thank Mara Faccio, Viet Anh Dang, Sadok El Ghoul, Sergio H. Rocha, Sadiqul Islam, Abul Shamsuddin, Xiaoran Ni, Wael Rouatbi, Walid Saffar, Syrine Sassi, Zhongtian Li, Carl Shen, Cathy Wu, and seminar participants at the Jinling Institute of Technology, Rabat Business School, Catholic University of Lyon, Nanjing University of Finance and Economics, University of Swansea, Griffith University, EM Normandie Business School, University of Newcastle, University of Dhaka, and University of Bologna, and the participants at Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference 2022, Future Finance Conference 2022, FMA Asia Pacific Conference 2022, and 4th RCEF Conference on Economics and Finance (Rajagiri Business School, Kerala, India, 2022). Authors’ names appear in alphabetical order. The usual disclaimer applies.

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