Inter-Creditor Conflicts: Evidence from the Bond Markets
|In the first chapter, I investigate the relationship between the number of outstanding public debt contracts of a firm, the firm's credit quality, and cost of debt. I find that firms with higher credit quality tend to use fewer public issues, as well as that firms with more issues tend to have a lower cost of debt, controlling for credit quality. My results are consistent with the idea that there are both costs and benefits to increasing the number of public debt contracts. Higher credit quality firms, starting out with a lower cost of debt, find the benefits insufficient to make up for the costs, and thus choose to have fewer debt issues than lower credit quality ones. I further find that information asymmetry is a significant moderating factor of the effect of number of debt issues on the cost of debt, with higher asymmetry decreasing the cost of debt benefit of a greater number of issues. In the second chapter, I investigate the impact of firm-level competitive intelligence on the firm's cost of debt. I find that competitive intelligence is not fully incorporated into debt credit ratings, and further that the effect of increased competitive intelligence varies with firm credit quality. For high credit quality firms, I find that higher CI is associated with higher yield spreads, while the opposite is true for the lower credit quality firms. This suggests that the bondholders of a firm with generally low distress probability view CI expenditure as irrelevant or wasteful, whereas those of a firm for which financial distress is a more significant risk, view it as a valuable activity which reduces default probability. In the third chapter, I examine the occurrence of informed trading in public debt issued by financial institutions. The sample is chosen from the set of firms subject to the FDIC call report regulations, and focuses on companies without publicly traded equity. I find that unexpected earnings are positively associated with price changes in debt instruments as a result of trading within the time period after report filing and before the release of report data to the public. Additionally, I find that the magnitude of the effect is greater for firms without public equity. Evidence further indicates an increase in the incidence of bond trading during this blackout window for firms with a greater magnitude of earnings surprise. These results suggest that there is information leakage taking place during the blackout window, leading to informed trading in public debt instruments of financial institutions.
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|Inter-Creditor Conflicts: Evidence from the Bond Markets
|Mao, Connie X.
|Mudambi, Ram, 1954-
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