Corporate Supply of Index Bonds

Stanley Fischer

No 331, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a simple theory of the supply of index bonds by a firm, and uses that model to examine in some detail possible reasons for the non-existence of privately issued index bonds in the United States. The major elements of the theory involve the trade-off between the tax advantages of using debt finance and the increasing risk of bankruptcy debt finance involves. The theory is first used to examine the supply of nominal bonds -- it is thus a theory of the debt-equity ratio. Then the firm's optimal supply of index bonds is examined, and the values of the firm using the alternative debt instruments is compared. In general, there is no reason to think that nominal bonds dominate index bonds -- i.e. the theory cannot explain why firms have not issued index bonds. The paper then turns to a number of other reasons that have been advanced for the non-issue of indexed bonds in the United States, such as the tax treatment of such instruments and the argument that their issue would saddle the firm with open-ended obligations.

Date: 1979-03
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Fischer, Stanley. "On the Nonexistence of Privately Issued Index Bonds inthe U.S. Capital Market." Inflation, Debt, and Indexation, edited by Rudiger Dornbusch and Mario Henrique Simonsen. Cambridge: M.I.T. Press, (1983),pp. 223-246.

Downloads: (external link)
http://www.nber.org/papers/w0331.pdf (application/pdf)

Related works:
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:nbr:nberwo:0331

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0331

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().