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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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    References listed on IDEAS

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    Cited by:

    1. Cortina Lorente,Juan Jose & Didier Brandao,Tatiana & Schmukler,Sergio L., 2020. "Global Corporate Debt during Crises : Implications of Switching Borrowing across Markets," Policy Research Working Paper Series 9142, The World Bank.
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    3. Didier Brandao,Tatiana & Levine,Ross Eric & Llovet Montanes,Ruth & Schmukler,Sergio L., 2020. "Capital Market Financing and Firm Growth," Policy Research Working Paper Series 9337, The World Bank.
    4. Facundo Abraham & Juan J. Cortina & Sergio L. Schmukler, 2019. "The Rise of Domestic Capital Markets for Corporate Financing: Lessons from East Asia," Mo.Fi.R. Working Papers 154, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    5. Martijn Boermans & John Burger, 2020. "Global and local currency effects on euro area investment in emerging market bonds," DNB Working Papers 676, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    benchmark indexes; bond issuance; corporate financing; emerging markets; institutional investors;

    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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