Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses

Tomas Williams, Sergio Schmukler, Mauricio Larrain and Charles Calomiris
Additional contact information
Charles Calomiris: Colombia Business School, Hoover Institution, and NBER

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: Emerging market corporations have significantly increased their borrowing in international markets since 2008. We show that this increase was driven by large-denomination bond issuances, most of them with face value of exactly US$500 million. Large issuances are eligible for inclusion in important international market indexes. These bonds appeal to institutional investors because they are more liquid and facilitate targeting market benchmarks. We find that the rewards of issuing index-eligible bonds rose drastically after 2008. Emerging market firms were able to cut their cost of funds by more than 76 basis points by issuing bonds with a face value equal to or greater than US$500 million relative to smaller bonds. Firms contemplating whether to take advantage of this cost saving faced a tradeoff after 2008: they could benefit from the lower yields associated with large, indexeligible bonds, but they paid the potential cost of having to hoard low-yielding cash assets if their investment opportunities were less than US$500 million. Because of the post-2008 “size yield discount,†many companies issued index-eligible bonds, while substantially increasing their cash holdings. We present evidence suggesting that these post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities. These patterns are not apparent in the issuance of investment grade bonds by firms in developed economies.

Keywords: benchmark indexes; bond issuance; corporate financing; emerging markets; institutional investors (search for similar items in EconPapers)
JEL-codes: F21 F23 F32 F36 F65 G11 G15 G31 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www2.gwu.edu/~iiep/assets/docs/papers/2019WP/WilliamsIIEP2019-15.pdf (application/pdf)

Related works:
Working Paper: Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses (2020)
Working Paper: Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses (2019)
Working Paper: Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2019-15

Access Statistics for this paper

More papers in Working Papers from The George Washington University, Institute for International Economic Policy Contact information at EDIRC.
Bibliographic data for series maintained by Kyle Renner ().