Financial contracting and the choice between private placement and publicly offered bonds
AbstractPrivate placement bonds have unique financial contracting in controlling borrower-lender agency conflicts due to direct monitoring and the relative ease of future renegotiation. Our data show that private placements are more likely to have restrictive covenants and are more likely to be issued by smaller and riskier borrowers. We find the determinants of bond yield spreads to be quite different between private placements and public issues, reflecting the different institutional arrangements between the two markets. Finally, in issuing bonds, we find that firms self-select the bond type to minimize both the financing costs and the transaction costs.
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Bibliographic InfoPaper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 2004-20.
Date of creation: 2004
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-23 (All new papers)
- NEP-CFN-2005-05-23 (Corporate Finance)
- NEP-FIN-2005-05-23 (Finance)
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