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The Call, Sinking Fund, and Term-To-Maturity Features of Corporate Bonds: An Empirical Investigation

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  • Mitchell, Karlyn

Abstract

Do bond-issuing firms attempt to choose the call, sinking fund, and term-to-maturity features of bonds to improve shareholder wealth? This paper develops and tests two hypotheses about the determinants of bond features using a conditional logistic model. The model is estimated on a sample of bonds issued between 1982 and 1986. Model estimates show that a bond's call, sinking fund, and term-to-maturity features are statistically related to the issuing firm's retention ratio, ratio of convertible to long-term debt, two-year change in net operating income, and whether the firm is listed on the NYSE and included in the S&P400. These findings support the view that firms financing highquality projects, but facing information asymmetries, choose shorter-term (medium-term) callable bonds with and without the sinking fund feature.

Suggested Citation

  • 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.
  • Handle: RePEc:cup:jfinqa:v:26:y:1991:i:02:p:201-222_00
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    Cited by:

    1. Deesomsak, Rataporn & Paudyal, Krishna & Pescetto, Gioia, 2009. "Debt maturity structure and the 1997 Asian financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 19(1), pages 26-42, February.
    2. Kish, Richard J. & Hogan, Karen M. & Olson, Gerard, 1999. "Does the market perceive a difference in rating agencies?," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(3), pages 363-377.
    3. Geetajali Bali & Frank Skinner, 2003. "The At Issue Maturity of Corporate Bonds: The Influence of Credit Rating, Security Level, Duration and Macreoconomic Conditions," ICMA Centre Discussion Papers in Finance icma-dp2003-01, Henley Business School, Reading University.
    4. Antoniou, Antonios & Zhao, Huainan & Zhou, Bilei, 2009. "Corporate debt issues and interest rate risk management: Hedging or market timing?," Journal of Financial Markets, Elsevier, vol. 12(3), pages 500-520, August.
    5. Goyal, Vidhan K., 2005. "Market discipline of bank risk: Evidence from subordinated debt contracts," Journal of Financial Intermediation, Elsevier, vol. 14(3), pages 318-350, July.
    6. Hernán Ortiz-Molina & María Penas, 2008. "Lending to small businesses: the role of loan maturity in addressing information problems," Small Business Economics, Springer, vol. 30(4), pages 361-383, April.
    7. Correia, Maria do Rosário, 2008. "The choice of maturity and additional covenants in debt contracts: A panel data approach," Research in International Business and Finance, Elsevier, vol. 22(3), pages 284-300, September.
    8. Maria do Rosario Correia & Scott C. Linn & Andrew Marshall, 2004. "An Empirical Investigation of Debt Contract Design: The Determinants of the Choice of Debt Terms in Eurobond Issues," FEP Working Papers 148, Universidade do Porto, Faculdade de Economia do Porto.
    9. Fu, Richard & Subramanian, Ajay, 2011. "Leverage and debt maturity choices by undiversified owner-managers," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 888-913, September.
    10. Choi, Seungmook & Jameson, Mel & Jung, Mookwon, 2013. "The issuance of callable bonds under information asymmetry," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 1-14.
    11. Schall, Lawrence D. & Siegel, Andrew F., 2016. "Debt callability and investment incentives," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 315-330.
    12. Nayar, Nandkumar (Nandu) & Stock, Duane, 2008. "Make-whole call provisions: A case of "much ado about nothing?"," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 387-404, September.
    13. repec:pid:journl:v:55:y:2016:i:4:p:361-394 is not listed on IDEAS
    14. Tewari, Manish & Byrd, Anthony & Ramanlal, Pradipkumar, 2015. "Callable bonds, reinvestment risk, and credit rating improvements: Role of the call premium," Journal of Financial Economics, Elsevier, vol. 115(2), pages 349-360.
    15. Cai, Jun & Cheung, Yan-Leung & Goyal, Vidhan K., 1999. "Bank monitoring and the maturity structure of Japanese corporate debt issues," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 229-249, August.

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