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The At Issue Maturity of Corporate Bonds: The Influence of Credit Rating, Security Level, Duration and Macreoconomic Conditions

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  • Geetajali Bali

    () (ICMA Centre, University of Reading)

  • Frank Skinner

    () (ICMA Centre, University of Reading)

Abstract

We examine the determinants of the at issue time to maturity of corporate bonds. We find evidence that corporations partly determine the at issue maturity of bonds by responding to economic conditions. They also appear to immunize by matching the maturity of assets with the at issue maturity of bonds regardless of credit quality. Finally, we find evidence that the security level (our proxy for the recovery rate) is inversely related to the at issue time to maturity. This suggests that lenders use the promised maturity and security level bond covenants as screening mechanisms to overcome some of the asset substitution and adverse selection problems associated with buying bonds that are subject to credit risk.

Suggested Citation

  • Geetajali Bali & Frank Skinner, 2003. "The At Issue Maturity of Corporate Bonds: The Influence of Credit Rating, Security Level, Duration and Macreoconomic Conditions," ICMA Centre Discussion Papers in Finance icma-dp2003-01, Henley Business School, Reading University.
  • Handle: RePEc:rdg:icmadp:icma-dp2003-01
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    File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2003-01.pdf
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    References listed on IDEAS

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    1. Sudipto Sarkar, 1999. "Illiquidity Risk, Project Characteristics, And The Optimal Maturity Of Corporate Debt," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(3), pages 353-370, September.
    2. Sarkar, Sudipto, 1999. "Illiquidity Risk, Project Characteristics, and the Optimal Maturity of Corporate Debt," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(3), pages 353-370, Fall.
    3. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    4. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-631, June.
    5. Mitchell, Karlyn, 1991. "The Call, Sinking Fund, and Term-To-Maturity Features of Corporate Bonds: An Empirical Investigation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 201-222, June.
    6. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
    7. Ramon E. Johnson, 1967. "Term Structures Of Corporate Bond Yields As A Function Of Risk Of Default," Journal of Finance, American Finance Association, vol. 22(2), pages 313-345, May.
    8. Hardouvelis, Gikas A, 1988. " The Predictive Power of the Term Structure during Recent Monetary Regimes," Journal of Finance, American Finance Association, vol. 43(2), pages 339-356, June.
    9. Jewell, Jeff & Livingston, Miles, 1998. "Split Ratings, Bond Yields, and Underwriter Spreads," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(2), pages 185-204, Summer.
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    More about this item

    Keywords

    maturity; credit risk; security level; duration; macroeconomic factors;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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