Firm Financing and Growth in the Arab Region...Firm Financing and Growth in the Arab Region Juan...

Policy Research Working Paper 7756

Firm Financing and Growth in the Arab Region Juan Jose Cortina Lorente

Soha Ismail Sergio L. Schmukler

Development Research GroupMacroeconomics and Growth TeamJuly 2016

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Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Policy Research Working Paper 7756

This paper is a product of the Macroeconomics and Growth Team, Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at [email protected], [email protected], [email protected].

This paper documents how firms in Arab countries issue equity, corporate bonds, and syndicated loans in domes-tic and international markets to obtain financing and grow. Using a new data set on issuance activity and firm performance, the paper finds that capital raising through these markets has grown rapidly since the early 1990s and involved an increasing number of issuing firms. Whereas the amounts raised (relative to gross domestic product) in equity and loan markets stand well with respect to

international standards, bond issuance activity lags behind. Yet, bond financing has gained importance over time. Equity issuances primarily take place domestically, while bonds and loans are mostly issued internationally, display long maturities, and entail low levels of credit risk. Issuing firms are larger, grow faster, and are more leveraged than non-issuers. While issuers tend to be larger ex ante than non-issuers, the size gap between them seems to widen over time.

Firm Financing and Growth in the Arab Region

Juan Jose Cortina Lorente Soha Ismail Sergio L. Schmukler*

JEL Classification Codes: F21, F65, G00, G10, G15, G23, G31, L25

Keywords: Arab countries, capital raising, corporate bonds, domestic and international debt markets, equity, firm financing, global financial crisis, issuance activity, Middle East and North Africa region, syndicated loans

* We are grateful to Shanta Devarajan and Ibrahim Elbadawi for encouraging us to write the paper. For generous supportto produce this paper, we are grateful to the World Bank’s Development Economics Department, Knowledge for ChangeProgram (KCP), Middle East and North Africa Region, Strategic Research Program (SRP), and especially the EconomicResearch Forum (ERF) in Egypt.Email addresses: [email protected], [email protected], [email protected].

mailto:[email protected]



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1. Introduction

Since the early 1990s, many countries in the Arab world have embarked on significant financial and

economic reforms, involving internal and external financial liberalization, as well as efforts to increase

the depth, scope, and efficiency of their financial systems. At the same time, Arab financial systems

have shown considerable improvements over the last two decades. Although policy makers in the

region have realized the importance of expanding the breadth of their financial systems and operating

active capital markets, Arab financial systems are often perceived to be underdeveloped. In particular,

financial markets are still highly bank-based, thin, tightly regulated, and dominated by government

ownership. Within the Arab world, financial systems in the Gulf Cooperation Council (GCC) tend to

be more developed and globally integrated than those of other countries in the region.1

This paper uses a unique data set to provide a first documentation of the extent to which firms

in the Arab region use capital and syndicated loan markets to obtain financing and grow. We address

three main questions as follows. (1) What is the total amount raised in equity, bond, and syndicated

loan markets by firms in the Arab region and how does their issuance activity stand with respect to

the rest of the world? (2) How many and which firms actually issue equity, bonds, and syndicated

loans? (3) How do the assets, turnover, and number of employees evolve for issuing relative to non-

issuing firms?

To address these questions, we assemble a comprehensive transaction-level data set on equity,

corporate bonds, and syndicated loans issued in domestic and international markets over the 1991-

2014 period. The data include 719,242 individual security issuances conducted by 138,091 (listed and

non-listed) firms from 96 countries. For Arab countries, we then match these data with balance sheet

information on publicly listed firms. Our matched data comprise 1,462 firms over the period 2003-

1 The Gulf Cooperation Council states include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

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2011 from 12 Arab countries. This allows us to document new patterns about the comparative

behavior of the size and growth of issuing and non-issuing firms.

This paper presents three main interrelated findings. First, over the two decades leading to

2014, there has been considerable increase in the issuance activity of equity and debt in Arab countries.

However, while the capital raising in equity and syndicated loan markets stands well with respect to

international standards, corporate bond markets still lag behind in the Arab region. Syndicated loan

markets are especially active, with the highest issuance activity (relative to GDP) in the developing

world. Nevertheless, the relative importance of corporate bond financing over total debt has increased

over time, especially since the onset of the global financial crisis of 2008-09. Within the region, the

GCC countries capture around 80-90 percent of the total amount raised in equity and debt markets.

Whereas the bulk of equity is issued domestically, debt issuances mostly take place in international

markets and have relatively long average maturities. Corporate bonds issued by non-financial Arab

firms during 1991-2014 had the longest average maturity in the world (11.5 years), while syndicated

loans presented the second longest (8.9 years). Corporate bond issuances also entail low levels of credit

risk compared to other developing regions, according to Standard and Poor’s credit ratings.

Second, the growth in equity and debt markets in the Arab region has not been limited to an

increase in the intensive margin. Namely, the number of issuing firms has substantially risen, indicating

an expansion in the extensive margin. In particular, the total amount raised (number of issuing firms)

has increased 21-fold (15-fold) in equity markets, 22-fold (6-fold) in bond markets, and 5-fold (3-fold)

in syndicated loan markets between 1991-1998 and 2007-2014. These findings stand in contrast with

other regions in the world, where the expansion in capital market issuance activity has been mainly

associated with a growth in the intensive margin (Didier and Schmukler, 2013; Didier, Levine, and

Schmukler, 2015). The expansion in these markets has also been associated with a decrease in firm

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concentration, as shown by the decreasing proportion of capital raising activity captured by the top-5

and top-20 issuing firms.

Third, firms that issue either equity, bonds, or syndicated loans are larger than non-issuing

firms, as they have more assets, turnover, and number of employees. For instance, during 2003-2011

the median equity-issuing firm had assets of around $240 million, which was almost 3 times the value

of assets of the median non-issuer. Debt, and especially bond, issuers are even larger than equity

issuers. Despite being larger, issuers grow at a faster rate than non-issuers. For instance, the growth

rates in assets (turnover) for the median equity issuer and non-issuer were around 14 (17) percent and

8 (13) percent per year, respectively. Issuing firms are also more leveraged and hold more long-term

debt compared to non-issuers. A difference-in-differences analysis shows that issuing firms are larger

ex ante than non-issuing firms in terms of assets, turnover, and the number of employees. While both

issuers and non-issuers have grown in size over time, issuers have grown at a faster pace, widening the

size gap. Similar results are evident along the firm size distribution (FSD). Although we do not evaluate

the causal impact of a firm issuing equity, bonds, or loans on its performance, the findings in this

paper indicate that firms grow faster when they issue.

The analysis in this paper relates to the literature on financial development and growth. A large

number of studies argue that financial development is positively associated with overall economic

growth.2 Better functioning financial systems can improve information dissemination and reduce

transaction and monitoring costs, leading to a more efficient allocation of resources. Moreover, more

accessible financial services can be beneficial for the development of small and medium enterprises

(SMEs), which tend to be underserved in developing countries (Beck and Demirgüç-Kunt, 2006; de

la Torre, Martínez-Pería, and Schmukler, 2010; Beck, Demirgüç-Kunt, and Martínez-Pería, 2011).

Another strand of literature stresses that larger and more liquid capital markets are associated with

2 See, for example, Levine (2005) for a review of the finance and growth literature.

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higher aggregate economic growth (e.g. Levine and Zervos, 1996, 1998; Demirgüç-Kunt and

Maksimovic, 1998; Henry, 2000; Beck and Levine, 2004; Bekaert, Harvey, and Lundblad, 2005; Levine,

2005). Capital markets are considered an important source of long-term financing, and hence can be

an engine of long-term investment and growth in developing countries. Nonetheless, most of this

literature uses aggregate measures of size as proxies for financial system performance, whereas only

very few have investigated how real market activity is related to firm performance.

Studying the use of capital markets by firms in the Arab world is interesting not only because

those countries have undergone a number of significant changes in their financial systems during the

past three decades, but also because research on financial development in the region is generally rather

limited. For example, Elsafti (2007) indicates that the total market capitalization for Arab stock

markets increased 18-fold between 1994 and 2005, while the number of listed firms increased 1.5-

fold. Similarly, looking at six non-GCC countries, Finger and Gressani (2014) argue that although

stock markets have considerably expanded in size, the number of stocks available for portfolio

investment is still small compared to the international average. A recent report by the Arab Monetary

Fund (2015) shows that the total Arab stock market capitalization was around $1,255 billion in the

second quarter of 2015, with 1,503 listed firms. The GCC countries account for almost 87 percent of

stock market size in the region. Market capitalization in Saudi Arabia alone was reported at $537 billion

for the second quarter of 2015; a figure that was more than 3 times the market size of all the non-

GCC countries together.

A limited number of studies investigate the relation between the size of the financial system

and aggregate economic growth in the Middle East and North Africa (MENA) or Arab Region (Abu-

Bader and Abu-Qarn, 2008a, 2008b; Al-Rjoub, and Abu-Mhareb, 2006; Al-Zubi, Kar, Şaban, and Ağır,

2011; Al-Malkawi, 2012). Moreover, literature that specifically looks at the economic effect of capital

markets is limited to an even fewer number of studies (Bolbol, Fatheldin, and Omran, 2005; Naceur

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and Ghazouani, 2007; Falahaty and Hook, 2013). For example, studying the rate of investment growth

for 83 firms in five Arab countries during 1996-2001, Bolbol and Omran (2005) find no significant

relation between equity issuance and investment growth in a given year. While they find debt growth

to be associated with higher capital expenditure, there is no information as to the nature or type of

this debt. No study has investigated how and which firms in the Arab world issue equity, bonds, or

syndicated loans to raise finance, and how this is related to their growth performance.

So far, the literature has been mostly limited to the use of aggregate data to analyze the level

of banking system or stock market development in the Arab region. This paper contributes to the

literature by using a large transaction-level data set to present a detailed analysis of how Arab firms

have used not only stock markets, but also corporate bond and syndicated loan markets to raise funds

over a long period of time (1991-2014). Moreover, using a uniquely matched firm-level data set of real

issuances and firm characteristics, we are able to examine how widespread the use of equity, bonds,

and syndicated loans by firms in the Arab world is, and how firms that actually issue in these markets

evolve compared to non-issuers. While some interesting findings have been documented for several

countries (e.g. Didier and Schmukler, 2013; Didier, Levine, and Schmukler, 2015), none have

specifically looked at firms in the Arab region.

The remainder of the paper is organized as follows. Section 2 describes the data. Section 3

describes the evolution and main characteristics of equity, bond, and syndicated loan markets in the

Arab region. Section 4 examines which firms use these markets, focusing on firm characteristics such

as size, growth, debt structure, and profitability. Section 5 studies the dynamics of ex ante and ex post

firm performance and the evolution of FSD for issuing and non-issuing firms. Section 6 concludes.

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2. Data

To assess the capital raising activity of Arab countries in equity, corporate bond, and syndicated loan

markets, we assemble a comprehensive data set on firms’ security issuances from 1991 through 2014.

To benchmark the Arab region against other regions in the world, we include firms’ issuance activity

from all over the world. Our data on firms’ capital raising activity come from the Thomson Reuters

Security Data Corporation (SDC) Platinum database, which provides transaction-level information on

new issuances of common and preferred equity, publicly and privately placed bonds, and syndicated

loans with an original maturity of one year or more. Given that the SDC Platinum database does not

collect data on debt issuances with maturities shorter than one year, the data set does not cover

commercial paper. Because our analysis focuses on corporate financing, we exclude all public sector

issuances, comprising securities issued by national, local, and regional governments, government

agencies, regional agencies, and multilateral organizations. We also exclude mortgage-backed securities

and other asset-backed securities. The data set includes 138,091 firms and 719,242 security issuances:

199,742 equity issuances, 294,159 bond issuances, and 225,341 syndicated loan issuances. The analysis

focuses on 12 Arab nations, for which the data set includes 1,630 firms and 4,372 security issuances:

1,398 equity issuances, 650 bond issuances, and 2,324 syndicated loan issuances.

To classify equities and corporate bonds as domestic or international, we compare the market

location in which the securities are issued to the issuing firm’s nationality. For offerings that take place

simultaneously in more than one market, we consider tranches in each market as separate issuances.

The data set includes 382,535 issuances in domestic markets and 105,916 issuances in international

markets. For syndicated loans, the nationality of the banks that participate in the deal is used to

distinguish between domestic or cross-border lending. Domestic loans are those in which only

domestic banks participate in the syndication, whereas international loans entail the participation of at

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least one foreign bank. The data set includes 108,016 domestic syndicated loans and 117,325

international syndicated loans.

Firms are classified into financial and non-financial corporations according to their Standard

Industry Classification (SIC) code. Firms with SIC codes between 6000-6800 are classified as financial

corporations. The data set includes 40,591 equity, 184,236 bond, and 45,403 syndicated loan issuances

by financial firms (or 20, 63, and 20 percent of the total issuances of equity, bonds, and syndicated

loans, respectively).

To examine the comparative characteristics and performance of issuing and non-issuing firms

in the Arab countries, we match the data set on security issuances from SDC Platinum with 2003-

2011 firm-level balance sheet information from the Orbis (Bureau van Dijk) database. The latter

covers publicly listed companies, providing a rather homogeneous sample of firms. By omitting

unlisted firms from the analysis using the matched data, the sample excludes firms that are (1) relatively

small and sometimes informal, (2) likely to have different accounting standards, and (3) less likely to

issue in capital markets. The final matched data set covers 1,462 firms from 12 Arab countries. In

particular, our sample includes firms from Algeria, the Arab Republic of Egypt, Bahrain, Jordan,

Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates.

Moreover, we classify firms as issuers or non-issuers based on whether they issued equity,

bonds, or syndicated loans at any point during our sample period. Because firm-level balance sheet

information is only available from 2003 to 2011, we classify a firm as an issuer if it had at least one

issuance during that period. We further classify whether firms are equity, bond, or loan issuers

depending on whether firms issued any equity, bonds, or syndicated loans, respectively. The sample

of non-issuing firms is held fixed throughout the paper. Non-issuing firms are those that did not have

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any issuance activity between 2003 and 2011. In the SDC-Orbis data, 384 firms are issuers and 1,078

are non-issuing firms.3

Our analysis focuses on firm size and growth, measured by the level and growth rate of total

assets, turnover, and the number of employees. Firm assets and turnover are measured in constant

2011 U.S. dollars, using the U.S. consumer price index (CPI) to discount nominal values. The analysis

also examines firm profitability, and other financial indicators such as return on assets (ROA), leverage

(including bank and other types of financing), and the maturity profile of liabilities.

3. Capital Raising Activity in the Arab World

The available literature has documented considerable progress in the development of the financial

sector in the Arab world. Nonetheless, it is essential to analyze the extent to which such developments

have translated into an increased use of capital financing by the private sector. The data used here

focus on capital raising activity at the transaction level of equity, bonds, and syndicated loans.

The issuance data show that there has been a sizable expansion in equity and debt markets in

the Arab region since the early 1990s. The total amounts raised in equity, bond, and syndicated loan

markets, relative to the region’s GDP, have grown by factors of 8, 6, and 2, respectively, between

1991-1998 and 2007-2014 (Figure 1). In comparison to international standards, while equity and

syndicated loan markets seem to perform relatively well, bond market activity still lags behind. For

example, the total value of equity issuances by firms in the Arab world stood at 0.8 percent of GDP

in 2007-2014, compared to 0.7 percent in Eastern Europe and Central Asia (ECA), 1.0 percent in

Latin America and the Caribbean (LAC), 1.6 percent in Asia, and 1.4-1.8 percent in developed

countries. On the other hand, at 1.2 percent of GDP, bond market issuances remained low compared

to approximately 1.6 percent in ECA, 2.0 percent in LAC, 2.6 percent in Asia, and 5.8-7.7 percent in

3 Appendix Table 3 reports the number of issuing and non-issuing firm per Arab country.

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the developed world. Although the importance of syndicated loans, relative to GDP, has decreased

since the onset of the global crisis, their markets remain very active. In fact, at 3.6 percent of GDP,

Arab syndicated loan markets were the most active in the developing world during 2007-2014.

The global financial crisis of 2008-09 seems to have had an effect on the nature of debt

financing by Arab firms. Whereas the total amount raised in syndicated loans to GDP dropped by

almost 12 percent during 2007-2014, it increased by 54 percent in bond markets (Figure 1). As a result,

loan debt as a share of the total debt issued per year has declined by 16 percentage points between

2008 and 2009 in the Arab region, following a worldwide pattern (Figure 2). This pattern is consistent

with recent literature highlighting a second wave of global liquidity (from banks and toward bonds) in

developing countries after the global financial crisis (Shin, 2013; Acharya et al., 2015; IMF, 2015;

Cortina, Didier, and Schmukler, 2016).

Looking at the absolute value of issuances, the wide expansion in Arab equity and debt markets

is also evident. The gross amount raised by firms in equity, bond, and syndicated loan markets has

increased almost 21-fold, 22-fold, and 5-fold, respectively, between 1991-1998 and 2007-2014 (Figure

3, Panel A). Comparing the different markets, the total amount raised in debt was larger than the total

amount raised in equity during the last study period. In particular, the total amounts raised through

bonds and loans were 1.4 and 4.3 times the amount raised in equity, respectively. However, while most

of equity market issuances take place domestically, the bulk of debt issuances by Arab firms are

concentrated in foreign markets. International issuances accounted for less than 4 percent of the total

capital raised in equity markets, but for 89 percent and 92 percent of the total in bond and loan markets

during 2007-2014.4 Almost all the funds raised with foreign debt and a large share of domestic debt

issuances (around 49 percent in the last period) are denominated in foreign currency.

4 Most of the international issuances by Arab firms are conducted in a few, mostly developed, regions. The bulk of international equity is issued in the United Kingdom (61 percent), Eurozone (11 percent), and United States (8 percent). International bond issuances take place mostly in the Eurozone (61 percent), the United States (16 percent), and the United

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The weighted average maturity of debt at issuance during the 1991-2014 period was 7.7 years

in corporate bond and 7.8 years in syndicated loan markets (Table 1, Panel A). Moreover, within the

non-financial sector Arab firms issue very long-term corporate bonds and loans compared to other

regions in the world.5 The average maturity of issuances by non-financial firms in Arab countries is

11.5 years for bonds, the longest in the world, and 8.9 years for syndicated loans, the second longest

in the world.

A leading factor that might be behind this pattern is the intensive use of debt to finance

infrastructure projects, whose funding usually involves large amounts and long maturities. Indeed,

there is a large share of issuances coming from the transportation and energy sector in corporate bond

markets. Borrowing within this utility sector usually entails infrastructure project financing. This sector

accounts for more than 70 percent of the total amount raised in bonds by non-financial firms, which

is large compared to international standards (Figure 4, Panel B). Syndicated loans for the

transportation and energy sector also capture a larger share of the non-financial loan debt in the Arab

region than in other regions in the sample (Figure 4, Panel C). Accordingly, project finance loans, a

category that consists primarily of infrastructure projects, are used intensively in the Arab region (only

exceeded by Asia). Loans for project finance have an average maturity of 13.3 years and account for

about 31.6 percent of all syndicated loans contracted by Arab countries (Figure 5). On the other hand,

the average maturity of loans extended for other projects is much lower at 5.2 years.6 Consistent with

this pattern, the median deal size of debt issuances (proceeds raised per issuance) in the Arab region

is also much larger than in other regions of the world. The typical debt issuance (bonds and loans)

Kingdom (8 percent). Similarly, the largest volumes of syndicated lending are originated within a few regions, mainly the Eurozone countries (25 percent), United States (23 percent), and Saudi Arabia (12 percent). 5 Financial firms typically go shorter term than non financials, pushing the overall average maturity downwards. 6 Most of the project finance lending around the world finances infrastructure (Blanc-Brude and Ismail, 2013). Moreover, most financing for infrastructure projects comes from syndicated loans. Engel, Fischer, and Galetovic, (2014) provide evidence that in the United States and other developed countries the ratio of bonds to syndicated loans for infrastructure financing is 1:5 to 1:6, respectively. The ratio in Asia (excluding China) is 1:8 and in Latin America, 1:3.

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stands at more than $200 million, which is very large compared to international standards. For

instance, the median bond (loan) size is $19 ($125) million in LAC, $44 ($70) million in Asia, and $117

($97) million in G7 countries (Table 2, Panel A).

Moreover, corporate bonds issued by Arab firms tend to have relatively low risk ratings

compared to other developing regions. Almost 44 percent of the total capital raised with corporate

bonds by firms in Arab countries is rated between A- and AAA, according to Standard and Poor’s

credit ratings (Figure 6, Panel A). One possible explanation behind such high credit ratings might be

the fact that it is the very large, low risk firms that are involved in bond issuances.7

To what extent does the expansion in capital and syndicated loan markets imply that a wider

set of firms in fact use them? The growth in capital raising activity in the Arab region has been

associated with a growth in the extensive margin. In other words, with the growth in market activity,

an increasing number of firms have been using equity, bond, and syndicated loan markets to obtain

financing over the years. The number of issuing firms in Arab equity markets has increased by almost

15 times, from 44 issuers in 1991-1998 to 658 issuers in 2007-2014 (Figure 3, Panel B). Similarly, the

number of issuers in Arab bond (syndicated loan) markets has increased almost 6-fold (3-fold), from

24 (141) to 146 (483) issuers. These findings stand in contrast with other regions in the world, where

the expansion in capital market issuance activity has been mainly associated with a growth in the

intensive margin, that is, a small number of firms materially increasing their use of capital markets

(Didier and Schmukler, 2013; Didier, Levine, and Schmukler, 2015).

Although the increasing number of issuing firms has translated into a lower degree of market

concentration around the top issuers over time, most of the capital raising activity in the Arab region

remains captured by a few firms. For instance, while the total amount raised in equity markets by the

7 These high credit ratings are not driven by the dominance of the financial sector in bond issuances. Although around 69 percent of the total amount raised through bonds in the Arab region is carried out by financial firms, similar credit rating results are found when restricting the analysis to non-financial firms.

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top-5 (top-20) equity issuers stood at 51 (88) percent of the total during 1991-1998, their market share

dropped to 19 (45) percent during 2007-2014 (Figure 3, Panel C). Similar patterns are also observed

in debt markets. Respectively, the top-5 (top-20) bond issuers accounted for 69 (99) percent of the

market in 1991-1998, which declined to 19 (51) percent in 2007-2014. For loan markets, while the

top-5 (top-20) issuers captured close to 35 (67) percent of the market in 1991-1998, their shares

dropped to 12 (32) percent during the last period. These concentration figures remain high, especially

in equity markets where the number of issuing firms is relatively larger (there were 658 equity issuers,

146 bond issuers, and 483 loan issuers during 2007-2014).

Looking at the different countries in the region, there is considerable heterogeneity in market

activity, with the bulk of trading concentrated within a limited number of countries. More specifically,

the GCC states accounted for 82 percent, 91 percent, and 90 percent of the total value of issuances in

equity, bond, and syndicated loan markets during 1991-2014 (Table 2, Panel B).8 Those are rather

high shares considering that such countries accounted for around 66 percent of the total region’s GDP

during the same period. Saudi Arabia and UAE seem to be in the lead, with the latter accounting for

almost 60 percent of bond issuances in the region. Among non-GCC nations, the Arab Republic of

Egypt seems to have the most active markets, followed by Morocco in equity and loan markets and

Tunisia in bond markets.

4. Which Firms Use Equity, Bond, and Syndicated loan Markets?

To study which firms use capital and syndicated loan markets we merge the transaction-level data set,

from SDC Platinum database, with balance sheet information for listed firms from Orbis. We compare

8 Almost 20 percent of bond issuances and 18 percent of loan issuances in the GCC countries are in the form of Islamic finance issuances, while such markets barely exist in the other Arab countries. In particular, Bahrain, Kuwait, Qatar, Saudi Arabia, and UAE have the most active Islamic finance markets in the Arab region, with around 13 (19) percent, 21 (21) percent, 18 (16) percent, and 57 (26) percent of their bonds (loans) in the form of Islamic issuances. It is worth mentioning, though, that Malaysia has the most active Islamic bond market in the world, accounting for 90 percent of all Islamic bond issuances in our sample (around 2,100 issuances.

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the characteristics of non-issuing firms with firms that issue different types of instruments. In

particular, we compare: (1) firm size, measured by assets and turnover in 2011 U.S. dollars and the

number of employees; (2) firm growth, measured by the annual growth rate of assets, turnover, and

employees; (3) the liability structure of the firm, measured by the firm’s leverage and the ratio of long-

term debt to total firm liabilities; (4) firm profitability, measured by the ratio of retained earnings to

assets, the return on assets (ROA), and the return on equity (ROE). When comparing those

characteristics across issuers and non-issuers, we use the median firm for the sample period, after

taking the average over time for each firm. For the rest of the paper, we use the matched SDC-Orbis

data set on capital raisings and balance sheet information for the period 2003-2011.

Issuing and non-issuing firms differ along several dimensions. Issuers are much larger than

firms that do not issue equity, bonds, or syndicated loans (Table 3). Moreover, debt issuers, and

especially bond issuers, tend to be much larger than equity issuers. During our study period, while the

median non-issuing firm in the Arab region had around $81 million in assets, the median equity issuer

had assets of around $240 million, the median bond issuer had assets of around $10.4 billion, and the

median loan issuer had assets of around $5 billion. Similar qualitative results are found when looking

at firm turnover and the number of employees; issuers are typically larger in size than non-issuers,

debt issuers are larger than equity issuers, and bond issuers tend to be the largest.

Issuing firms also tend to grow faster than non-issuing firms. While the median non-issuer

grew at a rate of 7.5 percent per year (looking at assets) between 2003 and 2011, the median equity,

bond, and syndicated loan issuer grew at a rate of 13.9 percent, 19.5 percent, and 18.2 percent,

respectively. Differences between issuers and non-issuers are also sizable when looking at turnover

growth rates. Turnover grew at a rate close to 17 percent per year for the median issuer, compared to

12.9 percent for the median non-issuer. For the growth in employees, although issuers of equity,

bonds, and syndicated loans seem to have quantitatively higher rates than non-issuers, only the

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difference for bond issuers is statistically significant. In particular, the growth in employees for the

median firm that issued bonds was 7.7 percent per year, compared to only 0.06 percent for the median

non-issuer.

Issuing and non-issuing firms seem to significantly differ with respect to their liability

structure. First of all, issuing firms tend to be more leveraged than non-issuing firms, especially those

that issue either bonds or loans. While the leverage of the median non-issuer firm stood at 35.9 percent

during our sample period, a firm that issued equity, bonds, or syndicated loans had a leverage of 44.2

percent, 60.4 percent, and 50.3 percent, respectively. Issuers also tend to have a longer-maturity

liability structure. The share of long-term debt in total liabilities for the median non-issuer stood at 9.5

percent, whereas equity, bond, and syndicated loan issuers had 14.3 percent, 39.4 percent, and 38.7

percent of long-term debt over liabilities, respectively.

Looking at profitability for issuing and non-issuing firms, the findings are more ambiguous.

According to the firm’s ROE results, only bond and loan issuers seem to have significantly higher

ratios than non-issuers, while the ROE for equity issuers is lower but insignificant. The ratio of

retained earnings to assets show qualitatively similar results, although the estimates are barely

significant. Comparisons of ROA, on the other hand, show that all type of issuers have lower returns

on their assets than non-issuers.

5. How Does Firm Size Evolve for Issuing and Non-issuing Firms?

In this section we look at how firm dynamics are related to their capital raising activity. In

particular, we look at ex ante and ex post differences in the assets, turnover, and the number of

employees of issuing firms, compared to a control group of non-issuers. We examine whether firms

that issue equity, bonds, or syndicated loans grow faster than non-issuing firms. Moreover, we

investigate how the relative performance of both issuers and non-issuers evolve over the whole FSD.

15

We use information on firm characteristics for 2003 and 2010 for all firms in the sample, and

estimate mean difference-in-differences regressions on a constant, a dummy variable for issuing firms,

a dummy variable for 2010 observations, and the interaction term of those two variables. To assess

the evolution of firm size for issuers and non-issuers, we estimate the regression using the logs of

assets, turnover, or the number of employees as dependent variables. The estimated coefficients from

the difference-in-differences analysis are reported in Table 4 and should be interpreted as follows. The

constant term reflects the average size of non-issuing firms in 2003. The issuer dummy coefficient

measures the size of issuers relative to non-issuers in 2003. The 2010 dummy variable gauges the total

growth of non-issuing firms between 2003 and 2010. The interaction term measures the additional

growth of issuers, between 2003 and 2010, relative to non-issuers. That is, whether issuers grow on

average more compared to non-issuers.

The results in Table 4 show that, on average, firms that issue equity, bonds, or syndicated loans

are larger ex ante than non-issuing firms. The differences are also economically significant. The

estimates suggest that non-issuers in the Arab region had, on average, about $73 million in total assets

in 2003, while firms that issued equity had $150 million in assets―about 105 percent more. Bond and

loan issuers were even larger in 2003, holding $3.5 billion and $2.1 billion in assets, respectively. Similar

qualitative results are found for turnover. In particular, while non-issuers had a turnover of $20 million

in 2003, the values were almost $27 million for equity issuers and around $250 million for debt issuers.

Looking at the number of employees, the estimates are only statistically significant for bond and

syndicated loan regressions. Compared to non-issuers in 2003, bond and loan issuers had around 286

percent and 479 percent more employees, respectively.

Issuing firms not only start larger than non-issuing firms, but they also grow much faster. The

coefficients for the 2010 dummy are positive and statistically significant in all the specifications. The

estimates imply that, on average, non-issuers have expanded their total assets, turnover, and number

16

of employees by around 81 percent, 74 percent, and 25 percent, respectively between 2003 and 2010.

Importantly, the coefficients for the interaction term imply that issuing firms tend to grow even faster

than non-issuers. That is, issuing firms are not only initially larger, but there is actually ex post

divergence in firm size between issuers and non-issuers. Even after taking into account the initial size

differences, the estimates imply a sizeable additional growth for issuing relative to non-issuing firms

between 2003 and 2010. For example, equity issuing firms had an additional expansion of around 61

percent in their total assets, 63 percent in turnover, and 48 percent in the number of employees. The

additional growth rates have been especially high for bond and syndicated loan issuers. For example,

the additional expansions in the value of total assets were around 74 percent and 96 percent for firms

that issued bonds and syndicated loans, respectively.

To further assess the dynamics of firm size for issuing vis-à-vis non-issuing firms across the

entire distribution of firm size, we estimate four probability density functions that capture the FSD.

More specifically, we estimate two kernel density functions for 2003 (one for issuers of either equity,

bonds, or syndicated loans and one for non-issuers) and two analogous ones for 2010. The

distributions are estimated for the logs of assets, turnover, and the number of employees as proxies

for firm size. The results are presented in Figure 7 for equity issuers, Figure 8 for corporate bond

issuers, and Figure 9 for syndicated loan issuers. Consistent with the previous analysis, three main

findings emerge from the FSD dynamics. First, the 2003 distribution of issuers falls to the right of

non-issuers across every firm size decile, implying that issuing firms are typically larger ex ante than

non-issuing firms. Second, the FSD for both issuers and non-issuers shifted to the right between 2003

and 2010, implying that firms grew over this time period. Third, the distribution of issuing firms

shifted more to the right compared to that of non-issuing firms, indicating that the former grew

relatively faster. This is especially true for the FSD of bond and syndicated loan issuers, for which the

distributions stand even farther to the right. These patterns complement the previous results from the

17

difference-in-differences analysis and confirm that the results not only hold for the mean firm, but

issuers tend to be larger ex ante and grow even faster than non-issuers along the whole FSD.

6. Conclusions

During the period of fast expansion in Arab financial markets since the early 1990s, to what extent

have firms used equity, bonds, and syndicated loans to obtain financing? How many and which firms

issued securities in those markets? How did the assets, turnover, and number of employees of issuing

firms evolve relative to non-issuing firms? Despite their importance, these questions have never been

previously researched for firms in the Arab world.

Three main patterns are documented in this paper. First, between 1991 and 2014 there has

been a fast expansion in the total amount raised in equity, bond, and syndicated loan markets by firms

in the Arab region. The overall evidence suggests that while the level of activity in equity markets

stands well with respect to other regions in the world, bond market activity lags behind. Nevertheless,

the relative importance of bond financing has increased over time, especially since 2008. Capital and

syndicated loan market activity in the Arab region exhibit considerable heterogeneity across its

member countries, with the GCC nations capturing 80-90 percent of the total market activity.

Moreover, Arab debt issuances seem to be mostly funded from abroad, display lengthy maturity

structures, and entail low levels of credit risk.

Second, the documented market expansion has not been limited to an increase in the intensive

margin, as the number of issuing firms has substantially risen, indicating an expansion in the extensive

margin as well. In particular, the total amount raised (number of issuers) has increased by a factor of

21 (15) in equity markets, 22 (6) in bond markets, and 5 (3) in syndicated loan markets. Moreover,

firm concentration has also shown some decline, as indicated by the decreasing proportion of capital

raising activity captured by the top-5 and top-20 issuing firms.

18

Third, issuers of either equity, bonds, or syndicated loans are larger and grow faster than non-

issuers in terms of total assets, turnover, and the number of employees. Issuers also tend to be more

leveraged and hold more long-term debt, compared to non-issuers. All these patterns are more evident

for debt issuers, and especially bond issuers. Moreover, while issuers tend to be larger ex ante than

non-issuers, the size gap seems to widen over time. The reported differences hold over the FSD.

The findings in this paper imply that the development of bond and syndicated loan financing

in the Arab region has mostly been funded by international investors and banks. The reliance of Arab

countries’ firms on international markets to obtain debt financing might make their economies more

prone to external shocks. Moreover, most of the funds raised with bonds and loans by firms in Arab

countries are denominated in foreign currency. Debt denominated in foreign currency can be risky if

not properly hedged, as capital flight and currency depreciations could severely affect the balance sheet

of Arab firms and increase their credit repayment burdens. However, this risk might be mitigated by

the fact that Arab firms issue very long-term corporate bonds and loans compared to other regions in

the world.

These results also suggest that relatively smaller firms in the Arab world might be very

constrained from issuing securities in debt markets, given the high costs of issuing internationally and

the illiquidity of their domestic markets. To meet the liquidity and size requirements of international

buyers, the minimum deal size abroad is usually larger than in domestic markets. The international

issuance of securities also includes high legal costs to meet international regulations and international

rating fees (Zervos, 2004). Given the additional costs associated with international issuances, firms

issuing in international markets are typically larger than domestic issuers.

Although it is difficult to speculate, one could argue that Arab countries could benefit from

further developed domestic bond markets. Well-developed bond markets could allow firms to access

alternative sources of funds other than bank finance, promoting a more inclusive and broader use of

19

long-term finance to the extent that the entry cost is small. Moreover, they could increase the

competitive pressure on banking systems. As a starter, well-developed government bond markets

could be considered as a cornerstone for the development of domestic corporate bond markets, as

they could act as benchmarks for bond pricing and to create the necessary infrastructure for trading.

However, they also might have crowding out effects on the private sector. Furthermore, by boosting

the development of domestic bond markets, less reliance could be placed on international markets,

which could also reduce the vulnerability of Arab nations to external shocks.

Finally, the findings in this paper suggest that while only a small number of firms issue equity,

bonds, and syndicated loans in the Arab region, they do not just do so to shape their capital structure,

but also to finance investment opportunities and grow. This is important as issuing firms account for

a significant part of the total business investment. For example, Farrant et al. (2013) report that bond

issuers account for around one-third of the total investment in the United Kingdom. Accordingly,

these firms could have a big economic impact, with arguably extensive spillover effects over the rest

of the economy. These results suggest that a wider availability of external finance might allow Arab

economies to grow faster.

20

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C. Syndicated Loan Markets

Figure 1

Total Amount Raised, Share of GDP

A. Equity Markets

B. Corporate Bond Markets

This figure presents, for each region and period, the aggregate amount raised, as a share of the regions' GDP, in equity markets (Panel A), bond markets (Panel B), and

syndicated loan markets (Panel C).

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Africa Arab Countries Asia ECA G7 LAC Other Developed

Sh

are

of

GD

P, %

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


Sh

are

of

GD

P, %

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


Sh

are

of

GD

P, %

1991-1998 1999-2006 2007-2014

B. Other Regions

A. Arab Countries

Figure 2

Share of Loans as a Percentage of Total New Corporate Debt Financing

A. Developed Countries

This figure presents the total amount raised through syndicated loans as a share of the total amount of debt raised per year, by firms from the Arab region (Panel A) and

other regions in the world (Panel B).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Sh

are

of

Lo

ans,

% o

f T

ota

l D

ebt

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Sh

are

of

Lo

ans,

% o

f T

ota

l D

ebt

Africa Asia ECA G7 LAC Other Developed

Issuance Activity in the Arab Region

Figure 3

A. Amount Raised

B. Number of Issuing Firms

Total Raised by the Top-5, Top-10, and Top-20 Issuers as a % of the Total Amount Raised

C. Concentration in Equity, Bond, and Loan Markets

This figure shows in panel A the total amount raised in equity, bond, and syndicated loan markets per period. Panel B shows the total number of issuing firms per period in equity,

bond, and syndicated loan markets. Panel C shows the total amount raised per period by the top-5, top-10, and top-20 issuers in equity, bond, and syndicated loan markets, as share of

the total amount raised by firms in each of those markets.

44

231

658

24

70

146 141

313

483

0

100

200

300

400

500

600

700

1991-1

998

1999-2

006

2007-2

014

1991-1

998

1999-2

006

2007-2

014

1991-1

998

1999-2

006

2007-2

014

Equity Markets . Bond Markets . Loan Markets

Num

ber

of

Issu

ers

51%

26%19%

69%

32%

19%

35%

17%12%

19%

10%

13%

15%

23%

13%

14%

8%8%

18%

13%13%

15%

20%

19%

18%

12%12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1991-1

998

1999-2

006

2007-2

014

1991-1

998

1999-2

006

2007-2

014

1991-1

998

1999-2

006

2007-2

014


% o

f T

ota

l A

mo

un

t R

aise

d

Top-5 Top-10 Top-20

0

100,000

200,000

300,000

400,000

500,000

600,000

1991-1

998

1999-2

006

2007-2

014

1991-1

998

1999-2

006

2007-2

014

1991-1

998

1999-2

006

2007-2

014


2011 U

S D

olla

rs, M

illio

ns

Domestic Issuance Foreign Issuance

Figure 4

Sector Composition

A. Equity Markets

B. Corporate Bond Markets

C. Syndicated Loan Markets

This figure presents each sector's share of total capital raised in equity (Panel A), corporate bond (Panel B), and syndicated loan markets (Panel C). The sample period is 1991-

2014.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Africa Arab Countries Asia ECA G7 LAC OtherDeveloped

Sh

are

of

the

To

tal R

aise

d, %

Wholesale Trade

Transportation and Energy

Services

Retail Trade

Mining

Manufacturing

Construction

Agriculture, Forestry, and Fishing

Finance, Insurance, and Real Estate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Sh

are

of

the

To

tal R

aise

d, %

Wholesale Trade


Services

Retail Trade

Mining

Manufacturing

Construction



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Sh

are

of

the

To

tal R

aise

d, %

Wholesale Trade


Services

Retail Trade

Mining

Manufacturing

Construction



Figure 5

Syndicated Loans and Use of Proceeds

A. All Regions

B. Arab Countries

This figure presents the share of the total capital raised (left y-axis) and the weighted average maturity in years (right y-axis) of syndicated loans for different primary uses

(project finance versus other purposes). The sample period is 1991-2014.

0

2

4

6

8

10

12

14

16

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Mat

uri

ty

Sh

are

of

the

To

tal R

aise

d, %

0

2

4

6

8

10

12

14

16

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Algeria Bahrain Egypt,Arab Rep.

Jordan Kuwait Lebanon Morocco Oman Qatar Saudi Arabia Tunisia United ArabEmirates

Mat

uri

ty

Sh

are

of

the

To

tal R

aise

d, %

Other Projects, Share Project Finance, Share Other Projects, Maturity Project Finance, Maturity

Figure 6

Credit Ratings

A. All Regions

B. Arab Region

This figure presents the share of the total capital raised through corporate bonds with different credit ratings. Results are based on Standard and Poor’s credit ratings. The

sample period is 1991-2014.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Sh

are

of

the

To

tal R

aise

d, %

AA- to AAA

A- to A+

BBB- to BBB+

BB- to BB+

B- to B+

CCC- to CCC+

C to CC

Not Rated

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Bahrain Egypt,Arab Rep.

Jordan Kuwait Lebanon Morocco Oman Qatar Saudi Arabia Tunisia United ArabEmirates

Sh

are

of

the

To

tal R

aise

d, % AA- to AAA

A- to A+

BBB- to BBB+

BB- to BB+

B- to B+

CCC- to CCC+

C to CC

Not Rated

Equity Issuers vs. Non-Issuers

B. Turnover

C. Number of Employees

This figure shows the estimated kernel distributions of firm size for equity-issuing and non-issuing firms, in

2003 and 2010. Panel A uses the log of total assets as a proxy for size, whereas panels B and C use the log of

turnover and the log of the number of employees, respectively. Issuing firms are those that raised capital

through equity between 2003 and 2010. Non-issuers are the firms that did not issue equity, bonds, or

syndicated loans in our sample. Only firms with data in both 2003 and 2010 are included in this figure. The

kernel type used is a Gaussian with a band-width of 1.5.

Figure 7

Firm Size Distribution

A. Total Assets


This figure shows the estimated kernel distributions of firm size for bond-issuing and non-issuing firms, in



through bonds between 2003 and 2010. Non-issuers are the firms that did not issue equity, bonds, or

syndicated loans in our sample. Only firms with data in both 2003 and 2010 are included in this figure. The

kernel type used is a Gaussian with a band-width of 1.5.

Bond Issuers vs. Non-Issuers

B. Turnover

Figure 8


A. Total Assets

B. Turnover


This figure shows the estimated kernel distributions of firm size for loan-issuing and non-issuing firms, in



through syndicated loans between 2003 and 2010. Non-issuers are the firms that did not issue equity, bonds,

or syndicated loans in our sample. Only firms with data in both 2003 and 2010 are included in this figure.

The kernel type used is a Gaussian with a band-width of 1.5.

Loan Issuers vs. Non-Issuers

Figure 9


A. Total Assets

All Firms Non-Financials Financials All Firms Non-Financials Financials

( a ) ( b ) ( c ) ( d ) ( e ) ( f )

Africa 7.3 7.6 7.1 4.9 5.4 3.6

Arab Countries 7.7 11.5 6.0 7.8 8.9 4.3

Asia 7.2 6.5 7.9 8.3 9.0 6.0

ECA 7.2 8.3 6.4 4.4 5.6 1.9

G7 7.6 10.4 5.8 4.1 4.3 3.2

LAC 8.4 9.1 7.2 5.5 5.8 3.6

Other Developed 6.2 7.2 5.8 5.1 5.4 3.9

Country ( a ) ( b ) ( c ) ( d ) ( e ) ( f )

Algeria - - - 10.5 11.3 2.0

Bahrain 5.7 10.7 5.5 6.3 10.0 4.1

Egypt, Arab Rep. 4.6 7.3 3.8 7.8 8.2 4.6

Jordan 5.3 5.3 - 13.2 14.8 4.9

Kuwait 5.6 5.1 5.6 5.5 5.9 3.7

Lebanon 5.2 7.0 5.1 6.1 6.9 5.0

Morocco 13.0 15.0 4.8 12.2 13.3 4.6

Oman 5.1 5.1 5.2 11.6 12.3 5.6

Qatar 9.1 13.1 7.3 10.3 12.4 4.1

Saudi Arabia 12.9 16.9 8.5 8.6 9.2 5.3

Tunisia 10.6 - 10.6 7.7 7.9 5.0

United Arab Emirates 6.7 9.6 5.5 6.1 7.0 4.0

This table reports the weighted average maturity (in years) of all the debt issued by firms from different regions (Panel A) and by firms from the Arab countries (Panel B)

during the 1991-2014 period.

B. Arab Countries

Table 1

Weighted Average Maturity

Region

A. All Regions

Corporate Bonds Syndicated Loans

Amount Raised

Issuance Size

(Proceeds Raised

per Issuance)

No. of Issuances Amount Raised

Issuance Size

(Proceeds Raised per

Issuance)

No. of Issuances Amount Raised

Issuance Size

(Proceeds Raised per

Issuance)

No. of Issuances

( a ) ( b ) ( c ) ( d ) ( e ) ( f ) ( g ) ( h ) ( i )

Africa 83,092 30.3 748 57,884 58.8 368 283,240 125.5 1,048

Arab Countries 196,034 25.9 1,398 246,043 212.3 650 966,902 201.2 2,324

Asia 1,866,206 12.1 23,879 2,657,720 44.0 20,513 2,072,692 70.1 12,500

ECA 237,261 42.0 1,179 514,979 166.6 1,908 1,049,168 108.5 3,862

G7 10,500,000 12.3 106,774 41,500,000 117.4 168,013 49,900,000 97.2 164,333

LAC 664,254 33.0 3,848 1,550,681 19.3 15,889 1,005,791 125.4 4,340

Other Developed 3,484,221 4.8 61,916 13,500,000 43.2 86,818 9,954,587 96.9 36,934

Country ( a ) ( b ) ( c ) ( d ) ( e ) ( f ) ( g ) ( h ) ( i )

Algeria 13 3.4 3 0 0 11,912 126.7 51

Bahrain 10,021 66.0 54 12,462 217.0 47 43,133 162.8 168

Egypt, Arab Rep. 17,929 9.1 376 8,002 302.2 24 65,343 175.2 237

Jordan 5,705 6.0 199 258 73.8 3 3,906 70.1 42

Kuwait 29,093 76.7 128 5,633 198.8 24 64,997 185.2 160

Lebanon 3,478 38.9 33 4,002 100.0 37 362 35.0 7

Morocco 6,105 29.6 68 2,382 267.9 7 13,873 113.5 69

Oman 7,043 13.2 122 2,395 36.6 18 45,320 135.1 170

Qatar 25,309 185.1 67 22,425 239.4 48 124,485 313.4 233

Saudi Arabia 54,861 96.4 155 32,030 557.9 47 266,816 350.1 421

Tunisia 1,603 7.6 70 7,141 371.8 19 5,904 60.4 64

United Arab Emirates 34,875 133.7 123 149,313 197.1 376 320,852 232.7 702

This table reports the total amount raised, the median amount raised per issuance, and number of issuances in equity, corporate bond, and syndicated loan markets by firms from different regions (Panel A) and by firms from the Arab countries (Panel B).

The sample period is 1991-2014. Data on the amount raised are in millions of 2011 U.S. dollars.

Region

B. Arab Countries

Table 2

Total Amount Raised and Number of Issuances

A. All Regions

Equity Corporate Bonds Syndicated Loans

Non Issuers

Total Assets 80,991 239,950 *** 10,432,456 *** 5,036,655 ***

Turnover 28,291 61,212 *** 524,464 *** 518,808 ***

Number of Employees 213 384 *** 1,397 *** 1,072 ***

Asset Growth 7.52% 13.89% *** 19.51% *** 18.15% ***

Turnover Growth 12.87% 17.24% *** 17.35% 17.80% *

Number of Employees Growth 0.06% 0.49% 7.66% *** 0.77%

Leverage 35.94% 44.25% *** 60.44% *** 50.27% ***

Long Term Debt/Total Liabilities 9.51% 14.33% *** 39.38% *** 38.65% ***

Retained Earnings/Total Assets 6.48% 5.28% * 7.21% 8.50%

ROA 5.29% 3.05% *** 2.42% *** 3.29% ***

ROE 10.42% 8.60% 13.98% ** 14.99% ***

Firm Age (2011) 22 17 ** 31 * 24

Number of Firms 1,078 356 52 78

No. Observations for Total Assets 7,877 2,450 432 619

Table 3

This table reports the median firm attributes for the 2003-2011 period. The firm-level data are averages across time per firm. The table also reports the

statistical significance of median tests for each group (in the different columns) vs. non-issuers (in the first column). Issuing firms are those with at least

one capital raising issuance between 2003 and 2011. Non-issuing firms are those that did not issue during this period. Total assets and turnover are

reported in thousands of 2011 U.S. dollars. *, **, and *** denote statistical significance at the 10%, 5%, and 1% levels, respectively.

Firm Characteristics

Equity Issuers Bond Issuers Loan Issuers

Constant 11.197 *** 9.890 *** 5.115 ***

[0.069] [0.085] [0.117]

Issuer Dummy 0.723 *** 0.330 * 0.166

[0.194] [0.199] [0.287]

2010 Dummy 0.593 *** 0.554 *** 0.220 ***

[0.033] [0.058] [0.066]

Issuer Dummy x 2010 Dummy 0.476 *** 0.491 *** 0.389 **

[0.089] [0.116] [0.166]

No. of Observations 1,508

Constant 11.197 *** 9.890 *** 5.115 ***

[0.069] [0.085] [0.117]

Issuer Dummy 3.887 *** 2.520 *** 1.351 ***

[0.271] [0.283] [0.453]

2010 Dummy 0.593 *** 0.554 *** 0.220 ***

[0.033] [0.058] [0.066]

Issuer Dummy x 2010 Dummy 0.555 *** 0.550 *** 0.635 ***

[0.125] [0.177] [0.221]


Constant 11.197 *** 9.890 *** 5.115 ***

[0.069] [0.085] [0.117]

Issuer Dummy 3.357 *** 2.529 *** 1.756 ***

[0.238] [0.244] [0.313]

2010 Dummy 0.593 *** 0.554 *** 0.220 ***

[0.033] [0.058] [0.066]

Issuer Dummy x 2010 Dummy 0.671 *** 0.648 *** 0.668 **

[0.128] [0.282] [0.275]


This table reports OLS regressions of different firm attributes on a constant, a dummy variable for 2010, a dummy variable for

issuing firms, and an interaction term of these two dummies. The dependent variable pools the data on firm size at two points

in time (2003 and 2010) for all firms with data in both years. Issuing firms are those that raised capital through equity, bonds,

or syndicated loans between 2003 and 2010. Total assets and turnover are in logs of thousands of 2011 U.S. dollars; number of

employees is in logs. Standard errors, shown in brackets, are clustered at the firm-level. *, **, and *** denote statistical

significance at the 10%, 5%, and 1% levels, respectively.

C. Loans

920 440

Assets Turnover Employees

946 444

EmployeesTurnover

1,118 516

Assets

Table 4

B. Bonds

A. Equity

Employees

Difference in Differences Regressions

Assets Turnover

Africa Asia Arab CountriesEastern Europe and

Central AsiaG7

Latin America and the

Caribbean

Angola Bangladesh Algeria Azerbaijan Canada Argentina Australia Portugal

Cote d'Ivoire China Bahrain Belarus France Bolivia Austria Singapore

Ghana India Egypt, Arab Rep. Bulgaria Germany Brazil Belgium Slovak Republic

Kenya Indonesia Jordan Kazakhstan Italy Chile Cyprus Spain

Liberia Lao PDR Kuwait Latvia Japan Colombia Czech Republic Sweden

Nigeria Malaysia Lebanon Lithuania United Kingdom Costa Rica Denmark Switzerland

South Africa Pakistan Morocco Romania United States Dominican Rep. Finland Taiwan, China

Tanzania Papua New Guinea Oman Russian Federation Ecuador Greece

Zambia Philippines Qatar Turkey El Salvador Hong Kong SAR, China

Zimbabwe Sri Lanka Saudi Arabia Ukraine Guatemala Hungary

Thailand Tunisia Uzbekistan Jamaica Iceland

Vietnam United Arab Emirates Mexico Ireland

Panama Israel

Peru Korea, Rep.

Trinidad and Tobago Luxembourg

Uruguay Malta

Venezuela, RB Netherlands

New Zealand

Norway

Poland

Other Developed

Country Classification

Appendix Table 1

This table presents the list of countries that constitute the different regions.

Country Equity Corporate Bond Syndicated Loan Country Equity Corporate Bond Syndicated Loan Country Equity Corporate Bond Syndicated Loan

Algeria 3 0 51 Japan 7,897 14,487 26,046 Thailand 1,718 1,987 1,569

Angola 1 0 52 Jordan 199 3 42 Trinidad and Tobago 6 19 36

Argentina 286 1,305 477 Kazakhstan 28 129 227 Tunisia 70 19 64

Australia 29,087 9,119 5,453 Kenya 18 1 33 Turkey 456 173 1,355

Austria 385 2,024 244 Korea, Rep. 7,022 27,424 3,013 Ukraine 30 86 206

Azerbaijan 0 5 70 Kuwait 128 24 160 United Arab Emirates 123 376 702

Bahrain 54 47 168 Lao PDR 2 3 41 United Kingdom 13,446 15,805 12,565

Bangladesh 43 4 54 Latvia 13 6 57 United States 39,413 98,316 103,331

Belarus 1 4 44 Lebanon 33 37 7 Uruguay 7 29 35

Belgium 497 873 779 Liberia 0 6 43 Uzbekistan 1 0 49

Bolivia 89 187 24 Lithuania 31 4 36 Venezuela, RB 258 247 134

Brazil 1,361 3,754 1,119 Luxembourg 192 2,323 584 Vietnam 820 73 243

Bulgaria 44 16 115 Malaysia 3,134 3,898 1,103 Zambia 17 0 44

Canada 38,427 9,637 7,404 Malta 22 6 25 Zimbabwe 16 1 25

Chile 680 1,033 541 Mexico 667 2,640 1,097 Total 199,742 294,221 225,845

China 7,741 4,499 3,629 Morocco 68 7 69

Colombia 244 1,311 205 Netherlands 972 9,129 2,834

Costa Rica 9 299 33 New Zealand 766 675 1,287

Cote d'Ivoire 1 0 40 Nigeria 103 16 143

Cyprus 102 45 96 Norway 1,206 1,475 1,257

Czech Republic 24 85 332 Oman 122 18 170

Denmark 656 1,356 370 Pakistan 343 41 232

Dominican Rep. 6 14 29 Panama 25 214 267

Ecuador 12 240 18 Papua New Guinea 36 0 34

Egypt, Arab Rep. 376 24 237 Peru 187 1,265 196

El Salvador 10 463 41 Philippines 739 542 519

Finland 537 1,671 638 Poland 774 108 508

France 3,150 9,979 6,865 Portugal 358 1,367 694

Germany 3,063 16,519 4,968 Qatar 67 48 233

Ghana 11 2 106 Romania 37 17 221

Greece 633 234 500 Russian Federation 538 1,468 1,482

Guatemala 1 2,841 32 Saudi Arabia 155 47 421

Hong Kong SAR, China 7,235 8,152 3,055 Singapore 2,761 2,198 1,742

Hungary 101 133 393 Slovak Republic 5 16 117

Iceland 18 264 183 South Africa 564 335 535

India 8,065 8,227 3,132 Spain 855 2,247 4,677

Indonesia 1,058 1,227 1,897 Sri Lanka 180 12 47

Ireland 540 2,507 666 Sweden 1,917 3,287 1,175

Israel 679 317 118 Switzerland 792 3,005 1,133

Italy 1,378 3,270 3,154 Taiwan, China 3,780 6,778 5,061

Jamaica 0 28 56 Tanzania 17 7 27

(iii)

Total Number of Issuances per Country

Appendix Table 2

This table reports for each country the total number of issuances in equity, corporate bond, and syndicated loan markets. The sample period is 1991-2014.

(i) (ii)

Non-issuing Firms Issuing Firms

Algeria 3 0

Bahrain 29 13

Egypt, Arab Rep. 278 96

Jordan 201 58

Kuwait 177 36

Lebanon 5 6

Morocco 60 12

Oman 108 26

Qatar 27 18

Saudi Arabia 73 71

Tunisia 44 11

United Arab Emirates 73 37

This table reports the number of issuing and non-issuing firms per Arab country. Issuing firms are

those with at least one equity, bond, or syndicated loan issuance between 2003 and 2011. Non-issuing

firms are all other firms in the sample.

Appendix Table 3

Arab Country Coverage

Country

Number of Firms

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