Why issue bonds offshore?
This paper asks why Asia-Pacific residents issue debt in offshore markets and considers the implications for domestic debt markets. We use unit record data for bond issuance by non-government residents of Australia, Hong Kong, Korea, Japan and Singapore to link the decision to issue offshore to potential benefits. The results suggest that residents of smaller markets issue bonds offshore to arbitrage price differentials; to access foreign investors; and to issue larger, lower-rated or longer-maturity bonds. These bond characteristics tend to be correlated with offshore bond market size. The results support the notions that (i) deviations from covered interest parity are actively arbitraged by residents of minor currency areas, as well as by internationally active borrowers, as established in the literature; and (ii) issuers benefit from the liquidity and diversification of larger "complete" offshore markets. Against the potential benefits to borrowers, we consider the risks for both borrowers and the domestic market, and lessons from the ongoing financial crisis such as the benefits of funding diversification.
|Date of creation:||Dec 2010|
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- Laura Alfaro & Sebnem Kalemli-Ozcan, 2004.
"Why doesn't capital flow from rich to poor countries? An empirical investigation,"
2004 Meeting Papers
53, Society for Economic Dynamics.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
- Sebnem Kalemli-Ozcan & Laura Alfaro & Vadym Volosovych, 2003. "Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation," Working Papers 2003-01, Department of Economics, University of Houston.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," NBER Working Papers 11901, National Bureau of Economic Research, Inc.
- Baker, Malcolm & Greenwood, Robin & Wurgler, Jeffrey, 2003. "The maturity of debt issues and predictable variation in bond returns," Journal of Financial Economics, Elsevier, vol. 70(2), pages 261-291, November.
- Cameron, Linda & Chapple, Bryan & Davis, Nick & Kousis , Artemisia & Lewis, Geoff, 2007. "New Zealand Financial Markets, Saving and Investment," Occasional Papers 07/5, Ministry of Economic Development, New Zealand.
- David Drage & Anella Munro & Cath Sleeman, 2005. "An update on Eurokiwi and Uridashi bonds," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 68, September.
- Siegfried, Nikolaus & Simeonova, Emilia & Vespro, Cristina, 2007. "Choice of currency in bond issuance and the international role of currencies," Working Paper Series 0814, European Central Bank.
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