Callable Bond Revisited

Financial Management, Forthcoming

55 Pages Posted: 29 Aug 2009

See all articles by John Banko

John Banko

University of Florida

Lei Zhou

Northern Illinois University - Department of Finance

Date Written: August 28, 2009

Abstract

In light of the dramatic changes in the callable bond market, we re-examine the determinants of callable bonds. Using data from 1980-2003, we find that callable bonds are often issued by firms with both information asymmetry and underinvestment problems. However, risk-shifting does appear to be a major factor. Furthermore, we find that interest rate hedging is an important factor for investment grade bonds and when interest rates are high, but not so for below-investment grade bonds or when rates are low.

Keywords: Callable Bond, Agency Conflicts

JEL Classification: D82, G14

Suggested Citation

Banko, John and Zhou, Lei, Callable Bond Revisited (August 28, 2009). Financial Management, Forthcoming , Available at SSRN: https://ssrn.com/abstract=1463710

John Banko

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Lei Zhou (Contact Author)

Northern Illinois University - Department of Finance ( email )

Wirtz Hall
DeKalb, IL 60115
United States
815-753-1115 (Phone)
815-753-0504 (Fax)

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