The Choice between Bank Debt and Market Debt - Theoretical Review and Empirical Illustration

Abstract

When a firm needs additional capital it faces a choice between issuing debt and issuing equity. The choice also includes whether the firm should turn to the bank or to the market. This bachelor’s thesis aimed at exploring the theoretical choice between bank debt and market debt from the perspective of the borrowing firm. When the fundamental characteristics of bank debt and market debt had been outlined, the second objective of this thesis was to implement an empirical illustration by examining the debt structures among public, non-financial companies active in Sweden 2013. Our theoretical review shows that the theory concerning the choice between bank debt and market debt is extensive and quite ambiguous at the same time. The topic includes many different aspects, which makes the theory rather complex to apply to reality. Additionally, the results from our empirical illustration demonstrate that the various theories differed in their success at predicting the debt structures among the listed firms in Sweden.