Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets

We borrow from the literature on sovereign debt finance the idea of “original sin” and redefine it for use in corporate finance. In its new incarnation, original sin refers to the difficulty firms in many emerging markets have in borrowing domestically long-term, even in the local currency. We infer the nature of original sin from 5,500 financing decisions by firms in seven Asian emerging markets over a period of 11 years. Our sample period covers an episode when bond issuers had a choice between a less developed but growing onshore market, which varied across countries in the level of development, and a deep and liquid offshore market. We find that even in countries with onshore markets, it is often easier for unseasoned firms to issue offshore (in foreign currency) than to issue onshore, but structural change brought about by market development reverses this effect. In addition, once such a firm becomes a seasoned issuer, it is absolved from domestic original sin and is then able to act opportunistically and go to the market favoured by interest differentials.