Asset redeployability and the choice between bank debt and public debt

A firm with less redeployable assets, which are assets that have fewer alternative uses outside the firm, is more likely to borrow from banks than issue public debt. These findings are consistent with firms with less redeployable assets valuing the ability to renegotiate bank debt contracts instead of selling assets in the event of default. Consistent with this mechanism, firms with lower asset redeployability sell fewer assets following covenant violations. Our results contribute to work on the determinants of which debt markets a firm chooses to borrow from and the role that banks play as intermediaries.