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The At Issue Maturity of Corporate Bonds: The Influence of Credit Rating, Security Level, Duration and Macreoconomic Conditions

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  • Geetajali Bali

    ()
    (ICMA Centre, University of Reading)

  • Frank Skinner

    ()
    (ICMA Centre, University of Reading)

Abstract

We examine the determinants of the at issue time to maturity of corporate bonds. We find evidence that corporations partly determine the at issue maturity of bonds by responding to economic conditions. They also appear to immunize by matching the maturity of assets with the at issue maturity of bonds regardless of credit quality. Finally, we find evidence that the security level (our proxy for the recovery rate) is inversely related to the at issue time to maturity. This suggests that lenders use the promised maturity and security level bond covenants as screening mechanisms to overcome some of the asset substitution and adverse selection problems associated with buying bonds that are subject to credit risk.

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Bibliographic Info

Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2003-01.

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Length: 31 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:rdg:icmadp:icma-dp2003-01

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Related research

Keywords: maturity; credit risk; security level; duration; macroeconomic factors;

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References

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  1. Gikas A. Hardouvelis, 1987. "The predictive power of the term structure during recent monetary regimes," Research Paper 8708, Federal Reserve Bank of New York.
  2. Ramon E. Johnson, 1967. "Term Structures Of Corporate Bond Yields As A Function Of Risk Of Default," Journal of Finance, American Finance Association, vol. 22(2), pages 313-345, 05.
  3. Jewell, Jeff & Livingston, Miles, 1998. "Split Ratings, Bond Yields, and Underwriter Spreads," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 21(2), pages 185-204, Summer.
  4. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-31, June.
  5. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
  6. Sarkar, Sudipto, 1999. "Illiquidity Risk, Project Characteristics, and the Optimal Maturity of Corporate Debt," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 22(3), pages 353-70, Fall.
  7. Mitchell, Karlyn, 1991. "The Call, Sinking Fund, and Term-To-Maturity Features of Corporate Bonds: An Empirical Investigation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 201-222, June.
  8. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
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