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Bondholder Concentration and Credit Risk: Evidence from a Natural Experiment

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  • Alberto Manconi
  • Massimo Massa
  • Lei Zhang

Abstract

We exploit the impact of hurricane Katrina on insurance companies to study the relationship between bondholder concentration and credit risk. Redemption-driven sales by property and casualty (re)insurance companies exposed to hurricane Katrina are associated with a large drop in bondholder concentration faced by corporate bond issuers. Exploiting this shock to capture exogenous variation in bondholder concentration, we find that greater bondholder concentration is associated with higher bond yield spreads, as well as with firm characteristics associated with credit risk.

Suggested Citation

  • Alberto Manconi & Massimo Massa & Lei Zhang, 2016. "Bondholder Concentration and Credit Risk: Evidence from a Natural Experiment," Review of Finance, European Finance Association, vol. 20(1), pages 127-159.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:1:p:127-159.
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    References listed on IDEAS

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    Cited by:

    1. Girardi, Giulio & Hanley, Kathleen W. & Nikolova, Stanislava & Pelizzon, Loriana & Sherman, Mila Getmansky, 2021. "Portfolio similarity and asset liquidation in the insurance industry," Journal of Financial Economics, Elsevier, vol. 142(1), pages 69-96.
    2. Oprica, Silviu & Weistroffer, Christian, 2019. "Institutional presence in secondary bank bond markets: how does it affect liquidity and volatility?," Working Paper Series 2276, European Central Bank.
    3. Kubitza, Christian, 2021. "Investor-driven corporate finance: Evidence from insurance markets," ICIR Working Paper Series 43/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    4. Massa, Massimo & Zhang, Lei, 2021. "Bank credit tightening, debt market frictions, and corporate yield spreads," Journal of Financial Markets, Elsevier, vol. 55(C).
    5. Timmer, Yannick, 2016. "Cyclical investment behavior across financial institutions," Discussion Papers 08/2016, Deutsche Bundesbank.
    6. Christian Kubitza, 2021. "Tackling the Volatility Paradox: Spillover Persistence and Systemic Risk," ECONtribute Discussion Papers Series 079, University of Bonn and University of Cologne, Germany.
    7. Timmer, Yannick, 2016. "Cyclical investment behavior across financial institutions," ESRB Working Paper Series 18, European Systemic Risk Board.
    8. Timmer, Yannick, 2018. "Cyclical investment behavior across financial institutions," Journal of Financial Economics, Elsevier, vol. 129(2), pages 268-286.

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