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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. 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).
    4. 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).
    5. 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).
    6. 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.
    7. Anil K. Kashyap & Natalia Kovrijnykh & Jian Li & Anna Pavlova, 2018. "The Benchmark Inclusion Subsidy," NBER Working Papers 25337, National Bureau of Economic Research, Inc.
    8. 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.
    9. 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.

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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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