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

Mizen, P., Packer, F., Remolona, E. and 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, 102489. (doi: 10.1016/j.jimonfin.2021.102489)

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.

• Item Type: Articles
• Keywords: Bond financing, offshore markets, emerging markets, market depth, global credit.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Tsoukas, Professor Serafeim
• Authors: Mizen, P., Packer, F., Remolona, E., and Tsoukas, S.
• Subjects: H Social Sciences > HG Finance
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Journal of International Money and Finance
• Publisher: Elsevier
• ISSN: 0261-5606
• ISSN (Online): 1873-0639
• Published Online: 26 August 2021
• Copyright Holders: Copyright © 2021 Elsevier Ltd.
• First Published: First published in Journal of International Money and Finance 119: 102489
• Publisher Policy: Reproduced in accordance with the publisher copyright policy