Corporate Borrowings: A Conceptual Perspective

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Surya Narayan Behera, Maheswar Sethi


In the dynamic landscape of global business and finance, corporate borrowings play a crucial role in addressing firms' capital needs, promoting economic growth, and facilitate expansion (Levine, 2003) amidst ever-changing global business and financial scene. Corporate borrowings are essential in forming the financial frameworks of companies in all sectors of the economy. The borrowings, as a source of capital, are considered by the corporate due to limitation of equity capital such as higher risk association from the investors’ perspective and high cost of capital from the company perspective. Borrowings include debt securities, loans, and other credit instruments. Corporations strategically decide whether to leverage borrowed capital in order to maximise their capital structure (Rocca et al., 2011), manage risk (Eunju & Jang SooCheong, 2005), and take advantage of growth prospects (Zhang & Wu, 2017). It is because of the fact that borrowings hold an ambivalent status of acceptance among the corporate. In one hand, borrowings bring benefits to a firm in the form of tax shield effect and less costly capital thereby enhancing shareholders value. On the contrary, it brings many costs to a firm like bankruptcy cost, financial distress etc. So, when making financial decisions, managers carefully examine the option of corporate borrowings as a critical source of funding.

The recent emphasis on environmental sustainability by the Govt. and corporate, has led emphasis on the raising capital through green bond by the corporate that contribute positively to the climate or environment. Further, the concept of ESG (Environmental, Social and Governance) performance of the corporate has now dragged the attention of the investor as a measure of good corporate citizenship and thereby enabling the corporate to raise less costly capital through borrowings.

In a time of economic uncertainties, technological advancements, and evolving paradigms in financial markets, it is critical to comprehend the corporate borrowings. Hence, this paper aims to give a thorough overview of corporate borrowings by exploring the various facets that characterise this important component of contemporary financial ecosystems.

Further, this paper navigates across the potential benefits and theories which affect corporate financing decisions. On this investigation of corporate borrowings, we aim to provide valuable insights for scholars, policy makers, and industries. The remainder of this paper deals with importance, theories, cost, benefits, and determinants of corporate borrowings and last section provides the conclusion.

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How to Cite
Surya Narayan Behera, Maheswar Sethi. (2024). Corporate Borrowings: A Conceptual Perspective. European Economic Letters (EEL), 14(1), 396–404.