Subtle Influences on the Cost of Debt
Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM
- Chair: Jeffrey Wurgler, New York University
Capital Supply and Corporate Bond Issuances: Evidence From Mutual Fund Flows
AbstractThis paper examines how idiosyncratic shocks to capital supply affect firms' bond issuance decisions. I show that the bond issuance market is segmented: Firms' existing bondholders are much more likely to participate in bond offerings and purchase a large fraction of the bond issues. As a result, capital of a firm's existing bondholders affects firm-specific capital supply. Using flows to firms' mutual fund bondholders as a proxy, I find that companies with stronger capital supply are more likely to issue new bonds, and substitute away from equity and bank loans. Conditional on issuance, they enjoy lower offering yields. In addition, I support the main results by using Bill Gross' resignation as an exogenous shock to the capital supply for PIMCO's portfolio companies.
Tricks of the Trade? Pre-Issuance Price Maneuvers by Underwriter-Dealers
AbstractWe study the trading of dealers around new bond issues underwritten by their affiliates using a complete matched record of U.S. bond market transactions, bond issue deals, and underwriter ownership structure from 2005 to 2015. Compared to dealers unaffiliated to the lead underwriter, affiliated dealers pay 16–40 basis points more for the issuer’s preexisting bonds—prior to, during, and after the issuance event. We interpret this phenomenon as cross-security price support and, prior to the event, price maneuvers aimed at lowering the reference yield for new issue investors. By examining dealer inventories and profits, we find no support for alternative explanations such as hedging, informed trading, or competitive advantage in market-making.
- G3 - Corporate Finance and Governance