Authorities wanting to kick-start the economy using debt, take note: Russian shareholders dislike debt-financing, unlike their developed market peers. This is the implication of research from the Finnish central bank, which seeks to explain low levels of debt-financing in Russian companies.
The research considered company stock performance on days when the company announced debt financing. Most research on this subject has considered developed markets only; typically, these stocks respond positively to such announcements. Debt financing confers tax benefits – and also removes the need for potentially dilutive equity issuance.
Russian stockholders react in an equal and opposite way, however. Controlling for normal movements of the stock market index (RTS), the study finds that Russian company stocks fall by roughly the same amount that Western stocks rise, when a debt announcement is made. Why the debt-aversion? The authors point to perceptions of risky behaviour associated with taking extra debt, and recommend improved corporate governance: Read more