The sources of debt matter, too

This dissertation shows that not only the amount of debt but also the sources of debt affect a firm's financial decisions through the control of information asymmetry and asset substitution. In particular, it examines the effects of outstanding bank loans, loans from non-bank financial intermediaries, and unused bank lines of credit on a firm's cash holdings, asset risk, and investment. I find that different types of debt have distinctive effects on a firm's financial decisions. Outstanding bank loans decrease a firm's asset risk and increase investment; non-bank private debt decreases a firm's asset risk and investment; and unused bank lines of credit decrease a firm's cash holdings and asset risk and increase a firm's investment. The evidence shows that bank borrowing reduces both information asymmetry and asset substitution but non-bank private borrowing reduces only asset substitution. It suggests that firm-bank deposit relationships facilitate the production of information. In addition, I find that outstanding private borrowing has a stronger effect in reducing asset risk in mature firms than in young firms. To deal with the endogeneity problem associated with private financing, I also examine the determinants of private borrowing. Firms with large information asymmetry borrow more from financial intermediaries than from public investors and more from banks than from non-bank financial intermediaries, and firms with more investment opportunities have more unused lines of credit.