The choice between corporate and structured financing: evidence from new corporate borrowings

We examine the factors that influence nonfinancial firms’ choice of issuing standard corporate bonds vis-à-vis contracting structured finance, in the form of project finance or asset securitization arrangements. Using a data set of deals closed by 4,700 European borrowers between 2000 and 2016, we find that informational frictions and issuance costs affect public firms’ borrowing source choices. Findings suggest that borrowers choose structured finance when they are relatively smaller, less profitable, have lower asset tangibility, and seek long-term financing. Our findings also document that borrowers resorting to asset securitization tend to have larger growth opportunity sets. Borrowers resorting to project finance are less creditworthy than corporate bond issuers and, on average, asset securitization deals have an 87.6 basis points borrowing cost advantage over corporate bond deals for switchers.