Independent thesis Advanced level (professional degree), 20 credits / 30 HE credits
In this study we are investigating whether the bond-to-total debt ratio impacts firms’ performance. We are also asking if this relationship might differ during economic states of recession, due to the impacts of the latest financial crisis. The choice of topic stemmed from the opening of the new First North Bond Market in Sweden, in combination with the implications of the Basel III Accords coming into force in the Swedish financial market this year. When firms have less access to bank loans but easier access to a bond market, it is important to know whether issuing bonds could have an impact on the firms. Due to the limited amount of data from the young Swedish bond market, the study was conducted on the Norwegian market, in which a well- developed and mature corporate bond market is established. The choice was further supported by the fact that the countries’ socio-economic and financial environments are quite similar.
Our methodological views of positivism and objectivism guided us through our literature review in search for theories. A deductive approach was taken in order to generate hypotheses to test. Grand theories of capital structure and contingency theories of performance determinants served as the basis for our selection of research method and theoretical framework. Due to the lack of a middle-range theory that explains the effects of the relationship we wanted to test, our aim was to fill in this research gap with our study.
In order to test the significance of the correlation between the ratio and performance, a quantitative study was conducted through a multiple regression analysis. The results were consistent, as none of the tests performed were able to give significant correlations for the relationship. We could thus conclude that, in the Norwegian context, the bond- to-total debt ratio did not seem to impact firms’ performance.
Our tests showed an insignificant relationship between the bond-to-total debt ratio and firm performance. This result indicates that practitioners within the field do not have to worry about whether bonds will impact their performance. It also indicates that grand theories within capital structure do not need to be supplemented with further explanation of how they are affected by bonds. Our insignificant results could therefore not contribute with a middle-range theory to the field of finance. However, our findings can still be considered filling in the missing pieces of understanding the link between debt structure and firm performance, hence constituting new knowledge.