Public Debt Market Access and Corporate Investment

I show that access to the public debt market is associated with a significant reduction in the level of capital expenditures and takeovers, especially for firms with higher credit risk. Firms accessing the bond market also become less likely to violate debt covenants, reduce the level of payouts to equityholders, and increase cash holdings. Overall the evidence is consistent with the hypothesis that firms adjust their decisions when borrowing repeatedly from less-informed investors in order to reduce agency costs of debt