Why Do Firms Issue Guaranteed Bonds?

51 Pages Posted: 16 Feb 2015 Last revised: 13 Aug 2018

See all articles by Fang Chen

Fang Chen

University of New Haven

Jing-Zhi Huang

Pennsylvania State University - University Park - Department of Finance

Zhenzhen Sun

University of Massachusetts Dartmouth

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Date Written: August 8, 2018

Abstract

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

Chen, Fang and Huang, Jing-Zhi Jay and Sun, Zhenzhen and Yu, Tong, Why Do Firms Issue Guaranteed Bonds? (August 8, 2018). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2565602

Fang Chen (Contact Author)

University of New Haven ( email )

300 Boston Post Road
West Haven, CT 06516
United States

Jing-Zhi Jay Huang

Pennsylvania State University - University Park - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://www.personal.psu.edu/jxh56

Zhenzhen Sun

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
Dartmouth, MA 02747-2300
United States

Tong Yu

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
181
PlumX Metrics