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

• Published in: Journal of international money and finance 2021-12, Vol.119, p.102489, Article 102489
• Main Authors: Mizen, Paul, Packer, Frank, Remolona, Eli, Tsoukas, Serafeim
• Format: Article
• Language: English
• Subjects: Bond financing; Emerging markets; Global credit; Market depth; Offshore markets
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2021.102489

•We document the difficulty of firms issuing in domestic currency even in the home market.•We call this “original sin”, which has been familiar to sovereign bond issuance.•The paper explores 5901 financing decisions by firms in seven Asian emerging markets .•Bond issuers had a choice between growing onshore and deep, liquid offshore markets.•Unseasoned firms can issue offshore in foreign currency more easily than onshore.•A seasoned issuer absolved from original sin can issue in both markets. 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.