The paper studies the effects of diversifying funding sources on the financing conditions for firms. We exploit a regulatory reform that removed pre-existing limits on the issuance of corporate bonds by unlisted firms in Italy and introduced 'minibonds' in 2012. We measure its impact by comparing the credit conditions applied before and after the reform between issuer firms and ex-ante similar non-issuer firms as a control group.
The issuance of minibonds has a positive effect on the financing conditions applied to bank loans: after the first issuance, we find a reduction in lending rates on long-term loans of 40 basis points and a decrease in bank credit used, while the credit granted remains stable. The overall external funds available to issuer firms increase without a significant worsening in the overall financing costs. These results support the argument that the diversification of funding sources allows firms to improve their financing conditions.
