Why do firms issue guaranteed bonds?

Fang Chen, Jing Zhi Huang, Zhenzhen Sun, Tong Yu

Research output: Contribution to journalArticle

Abstract

Corporations often use affiliated firms as guarantors when issuing guaranteed bonds, thus combining external financing with internal credit enhancements. In this study, we empirically examine the potential determinants of corporate guaranteed debt issuance. We find evidence that issuers with fewer tangible assets, lower credit ratings, more pronounced debt overhang and/or greater managerial agency problems are more likely to issue guaranteed bonds. Moreover, we find that while firms generally issue guaranteed bonds with different motives, alternative incentives for guaranteed bond uses are largely captured by bond prices at issuance.

Original languageEnglish (US)
JournalJournal of Banking and Finance
DOIs
Publication statusAccepted/In press - Jan 1 2018

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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