Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets

Mizen, Paul; Packer, Frank; Remolona, Eli; Tsoukas, Serafeim

Abstract

In this paper, we focus on the surprising phenomenon in which firms face difficulty issuing in domestic currency even in the home market, especially in emerging markets. Could this be due to "original sin" which has been familiar to sovereign bond issuance? In its new incarnation, original sin refers to the difficulty firms in many emerging markets have in borrowing domestically long-term, even in the local currency. We infer the nature of original sin from 5,901 financing decisions by firms in seven Asian emerging markets over a period of 20 years. Our sample period covers an episode when bond issuers had a choice between a less developed but growing onshore market, which varied across countries in the level of development, and a deep and liquid offshore market. We find that even in countries with onshore markets, it is often easier for unseasoned firms to issue offshore (in foreign currency) than to issue onshore, but changes in market development reverses this effect. In addition, once such a firm becomes a seasoned issuer, it is absolved from domestic original sin and is then able to act opportunistically and go to the market favored by interest differentials.

Citation

Mizen, P., Packer, F., Remolona, E., & Tsoukas, S. (2021). Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets. Journal of International Money and Finance, 119, Article 102489. https://doi.org/10.1016/j.jimonfin.2021.102489

• Journal Article Type: Article
• Acceptance Date: Aug 21, 2021
• Online Publication Date: Aug 26, 2021
• Publication Date: 2021-12
• Deposit Date: Aug 23, 2021
• Publicly Available Date: Feb 27, 2023
• Journal: Journal of International Money and Finance
• Print ISSN: 0261-5606
• Electronic ISSN: 1873-0639
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 119
• Article Number: 102489
• DOI: https://doi.org/10.1016/j.jimonfin.2021.102489
• Keywords: bond financing; offshore markets; emerging markets; market depth; global credit JEL: C23; E44; F32; F34; G32; O16
• Public URL: https://nottingham-repository.worktribe.com/output/6088585
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0261560621001406