Does Geography Matter to Bondholders?

49 Pages Posted: 24 Aug 2008

See all articles by Bill B. Francis

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Maya Waisman

Fordham University - Gabelli School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August, 22 2008

Abstract

This study investigates the effect of geography on bondholders. Based on previous empirical evidence that associates information gathering costs to distance, we argue that when bondholders perceive corporate information of remote firms to be more difficult to obtain and monitor, they assign these firms a higher likelihood of withholding value relevant unfavorable information, and charge a higher risk premium. As predicted, we find that firms headquartered in remote rural areas, with few nearby investors, exhibit significantly higher costs of both private and public debt capital (of up to 52 basis points) in comparison to similar firms headquartered in urban, highly populated areas. Our findings hold when we control for information dissemination and monitoring factors that are associated with big cities, and are especially strong for firms with entrenched managers, bond issues without protective covenants in place, issues of non investment grade debt, and those made before the passage of the Sarbanes Oxley corporate reform Act.

Keywords: Geography, Bondholders, Risk Premium

Suggested Citation

Francis, Bill B. and Hasan, Iftekhar and Waisman, Maya, Does Geography Matter to Bondholders? (August, 22 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1247162 or http://dx.doi.org/10.2139/ssrn.1247162

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Iftekhar Hasan (Contact Author)

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Maya Waisman

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
31
Abstract Views
630
PlumX Metrics