Why Do Firms Issue Guaranteed Bonds?
51 Pages Posted: 16 Feb 2015 Last revised: 13 Aug 2018
Date Written: August 8, 2018
Corporations often use affiliated firms as guarantors when issuing guaranteed bonds, thus combining external financing with internal credit enhancements. In this study, we empirically examine the potential determinants of corporate guaranteed debt issuance. We find evidence that issuers with fewer tangible assets, lower credit ratings, more pronounced debt overhang and/or greater managerial agency problems are more likely to issue guaranteed bonds. Moreover, we find that while firms generally issue guaranteed bonds with different motives, alternative incentives for guaranteed bond uses are largely captured by bond prices at issuance.
Keywords: Guarantee, Credit Enhancement, Corporate Bonds, Credit Rating, Corporate Investments
JEL Classification: G30
Suggested Citation: Suggested Citation