Liquidity and Corporate Debt Market Timing

39 Pages Posted: 28 May 2014 Last revised: 8 Oct 2014

See all articles by Marina Balboa

Marina Balboa

University of Alicante - Department of Financial Economics

Belen Nieto

University of Alicante

Date Written: October 08, 2014

Abstract

This paper investigates whether firm managers time debt issuances according to market liquidity conditions. Using transactions data in the U.S. market from July 2002 to December 2009, our results show that both the moment and volume of debt issuance are significantly associated with periods of high aggregate liquidity in the corporate bond market. The result is especially strong when liquidity is aggregated across bonds in the same risk class. Splitting the sample into timers and nontimers, we find that liquidity timers benefit from issuing in moments of debt overpricing obtaining financing at much lower cost.

Keywords: corporate bonds issuances, liquidity, market timing, multi-way cluster, panel data, rating

JEL Classification: G31, G32, G12

Suggested Citation

Balboa, Marina and Nieto, Belen, Liquidity and Corporate Debt Market Timing (October 08, 2014). Available at SSRN: https://ssrn.com/abstract=2442175 or http://dx.doi.org/10.2139/ssrn.2442175

Marina Balboa

University of Alicante - Department of Financial Economics ( email )

Ctra. S. Vicente s/n
03690-S. Vicente del Raspeig
Alicante, San Vicente del Raspeig - Alicante 03690
Spain
+34 96 590 3400 Ext. 3135 (Phone)
+34 96 590 3621 (Fax)

Belen Nieto (Contact Author)

University of Alicante ( email )

Campus de San Vicente
Carretera San Vicente del Raspeig
San Vicente del Raspeig, Alicante 03690
Spain

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