There are many researches about the determinants of debt choice between bonds and borrowing (e.g. Bolton and Freixas, 2000). One approach for explaining this choice is to stress the comparative advantage of a bank as a monitor. By emphasizing the ability of the banking sector to mitigate the costs of asymmetric information, Diamond (1991) shows that firms with less established reputations tend to borrow from banks, while more successful firms tend to issue bonds. Following this idea, Petersen and Rajan (1994) find that close relationship with banks have made it possible for small U.S. firms to borrow at lower costs.

Thakor and Wilson (1995) discuss another benefit of bank borrowing. Because of its concentrated ownership, the banking sector decides efficiently whether to liquidate or bail out a firm in financial distress by renegotiating the terms of the debt contract with borrowers. Since the ownership of public bonds is dispersed among bondholders, they cannot rescue financially distressed firms as banks do efficiently.