A discrete-choice model for large heterogeneous panels with interactive fixed effects with an application to the determinants of corporate bond issuance

What is the effect of funding costs on the conditional probability of issuing a corporate bond? We study this question in a novel dataset covering 5610 issuances by US firms over the period from 1990 to 2014. Identification of this effect is complicated because of unobserved, common shocks such as the global financial crisis. To account for these shocks, we extend the common correlated effects estimator to settings where outcomes are discrete. Both the asymptotic properties and the small-sample behavior of this estimator are documented. We find that for non-financial firms yields are negatively related to bond issuance but that the effect is larger in the pre-crisis period.