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Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses

Author

Listed:
  • Charles W. Calomiris

    (Office of the Comptroller of the Currency)

  • Mauricio Larrain

    (School of Management, Pontificia Universidad Católica de Chile and Financial Market Commission of Chile)

  • Sergio L. Schmukler

    (World Bank Research Department)

  • Tomas Williams

    (George Washington University)

Abstract

Emerging market corporations significantly increased their borrowing in international markets since 2008 through large bond issuances. We document a strong clustering of issuances with face value of exactly US$500 million after 2008. This reflects investor willingness to purchase emerging market bonds included in international bond indexes (requiring a minimum face value of US$500 million). Index-eligible bonds allow investors to hold more liquid securities. Firms face a tradeoff: issuing large, index-eligible bonds allows them to borrow at a lower cost at the expense of hoarding cash. Because of this "size yield discount," many companies issued index-eligible bonds, increasing cash holdings.

Suggested Citation

  • Charles W. Calomiris & Mauricio Larrain & Sergio L. Schmukler & Tomas Williams, 2020. "Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses," Mo.Fi.R. Working Papers 165, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:165
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    Cited by:

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    3. Bacchetta, Philippe & Cordonier, Rachel & Merrouche, Ouarda, 2023. "The rise in foreign currency bonds: The role of US monetary policy and capital controls," Journal of International Economics, Elsevier, vol. 140(C).
    4. Didier, Tatiana & Levine, Ross & Llovet Montanes, Ruth & Schmukler, Sergio L., 2021. "Capital market financing and firm growth," Journal of International Money and Finance, Elsevier, vol. 118(C).
    5. Nina Boyarchenko & Leonardo Elias, 2023. "The Good, the Bad, and the Ugly of International Debt Market Data," Staff Reports 1074, Federal Reserve Bank of New York.
    6. Abraham,Facundo & Cortina Lorente,Juan Jose & Schmukler,Sergio L., 2020. "Growth of Global Corporate Debt : Main Facts and Policy Challenges," Policy Research Working Paper Series 9394, The World Bank.
    7. Facundo Abraham & Juan J. Cortina & Sergio L. Schmukler, 2020. "The Expansion of Corporate Bond Markets in East Asia and Latin America," Documentos de Trabajo 18594, The Latin American and Caribbean Economic Association (LACEA).
    8. Calomiris, Charles W. & Larrain, Mauricio & Schmukler, Sergio L., 2021. "Capital inflows, equity issuance activity, and corporate investment," Journal of Financial Intermediation, Elsevier, vol. 46(C).
    9. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2020. "Bond Risk Premia and The Exchange Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S2), pages 497-520, December.
    10. Kashyap, Anil K & Kovrijnykh, Natalia & Li, Jian & Pavlova, Anna, 2021. "The benchmark inclusion subsidy," Journal of Financial Economics, Elsevier, vol. 142(2), pages 756-774.
    11. Cortina, Juan J. & Didier, Tatiana & Schmukler, Sergio L., 2021. "Global corporate debt during crises: Implications of switching borrowing across markets," Journal of International Economics, Elsevier, vol. 131(C).

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    More about this item

    Keywords

    benchmark indexes; bond issuance; corporate financing; emerging markets; institutional investors;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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