A Discrete Choice Model for Large Heterogeneous Panels with Interactive Fixed Effects with an Application to the Determinants of Corporate Bond Issuance

34 Pages Posted: 24 Jan 2017

See all articles by Lena Boneva

Lena Boneva

Bank of England

Oliver B. Linton

University of Cambridge

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2017

Abstract

What is the effect of funding costs on the conditional probability of issuing a corporate bond? We study this question in a novel dataset covering 5,610 issuances by US firms over the period from 1990 to 2014. Identification of this effect is complicated because of unobserved, common shocks such as the global financial crisis. To account for these shocks, we extend the common correlated effects estimator to settings where outcomes are discrete. Both the asymptotic properties and the sample behaviour of this estimator are documented. We find that for non-financial firms, yields are negatively related to bond issuance but that effect is larger in the pre-crisis period.

Keywords: heterogeneous panel data, discrete choice models, capital structure

JEL Classification: C23, C25, G32

Suggested Citation

Boneva, Lena and Linton, Oliver B., A Discrete Choice Model for Large Heterogeneous Panels with Interactive Fixed Effects with an Application to the Determinants of Corporate Bond Issuance (January 20, 2017). Bank of England Working Paper No. 640, Available at SSRN: https://ssrn.com/abstract=2904941 or http://dx.doi.org/10.2139/ssrn.2904941

Lena Boneva (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Oliver B. Linton

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

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