Stock listing and financial flexibility

A stock listing usually reflects easy access to external equity financing. Although scant empirical evidence exists on the matter, the literature suggests that the enhanced standing towards creditors – which would result in easier access to debt financing – is an extra advantage of being publicly quoted. This paper tests whether a stock listing leads to more flexibility of debt financing, using a data set of listed and comparably large unlisted companies. The data reveals that listing mainly increases the flexible use of debt financing. The difference between listed and unlisted firms is most apparent when investment opportunities tend to arrive in low-cash-flow states. Furthermore, as the unlisted firms in the dataset are all large consolidating business groups, the results indicate that a group structure does not substitute for listing. The results are robust to different estimation methods.