Download This PaperDebt Issuance in the Era of Passive Investment
71 Pages Posted: 3 Apr 2018 Last revised: 3 Jul 2025
Date Written: April 11, 2020
Abstract
Passive bond funds provide predictable demand for newly issued corporate bonds included in popular indices. By issuing index-eligible bonds, firms can take advantage of this passive demand and improve bond characteristics unrelated to index eligibility. To this end, firms issue a disproportionate number of bonds with face value just sufficient to be included in major bond indices. Higher passive demand is associated with larger bonds. Following an increase in the index size threshold, some firms withdraw from the bond market while others respond by issuing larger bonds at the new threshold.
JEL Classification: G32
Suggested Citation: Suggested Citation
Dathan, Michele and Davydenko, Sergei, Debt Issuance in the Era of Passive Investment (April 11, 2020). Available at SSRN: https://ssrn.com/abstract=3152612 or http://dx.doi.org/10.2139/ssrn.3152612
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