Corporate Supply of Index Bonds
This paper develops a simple theory of the supply of index bonds by a firm, and uses that model to examine in some detail possible reasons for the non-existence of privately issued index bonds in the United States. The major elements of the theory involve the trade-off between the tax advantages of using debt finance and the increasing risk of bankruptcy debt finance involves. The theory is first used to examine the supply of nominal bonds -- it is thus a theory of the debt-equity ratio. Then the firm's optimal supply of index bonds is examined, and the values of the firm using the alternative debt instruments is compared. In general, there is no reason to think that nominal bonds dominate index bonds -- i.e. the theory cannot explain why firms have not issued index bonds. The paper then turns to a number of other reasons that have been advanced for the non-issue of indexed bonds in the United States, such as the tax treatment of such instruments and the argument that their issue would saddle the firm with open-ended obligations.
|Date of creation:||Mar 1979|
|Date of revision:|
|Publication status:||published as Fischer, Stanley. "On the Nonexistence of Privately Issued Index Bonds inthe U.S. Capital Market." Inflation, Debt, and Indexation, edited by Rudiger Dornbusch and Mario Henrique Simonsen. Cambridge: M.I.T. Press, (1983),pp. 223-246.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-22, September.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0331. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.