Investor Familiarity and Corporate Debt Financing Conditions

15 Pages Posted: 16 Mar 2017 Last revised: 26 Oct 2017

See all articles by Leonie Herrmann

Leonie Herrmann

University of Giessen - Department of Financial Services

Oscar Anselm Stolper

University of Marburg | Institute of Accounting and Finance

Date Written: October 23, 2017

Abstract

This study contributes to our understanding of how retail bondholders value familiarity with the issuer. Using a sample of corporate bonds issued by German non-financials and especially marketed to individual investors, we document that – besides product market visibility – three previously unconsidered antecedents of investor familiarity, i.e. local visibility, media visibility and overall recognition of the bond-issuing company, are negatively associated with credit spreads. Given that company visibility does not necessarily result in a reduction of fundamental risk for the group of bondholders, the finding that higher familiarity relates to lower risk premia suggests heuristic decision behaviour among retail investors where a familiarity bias reduces the perceived risk of bond investments.

Keywords: Investor familiarity, retail investors, company visibility, cost of capital, cost of debt, corporate bonds

JEL Classification: D22, D83, G02

Suggested Citation

Herrmann, Leonie and Stolper, Oscar Anselm, Investor Familiarity and Corporate Debt Financing Conditions (October 23, 2017). Finance Research Letters, Vol. 23, 2017. Available at SSRN: https://ssrn.com/abstract=2933377 or http://dx.doi.org/10.2139/ssrn.2933377

Leonie Herrmann (Contact Author)

University of Giessen - Department of Financial Services ( email )

Licher Str, 74
Giessen, 35394
Germany

Oscar Anselm Stolper

University of Marburg | Institute of Accounting and Finance ( email )

Am Plan 1
Marburg, 35032
Germany

HOME PAGE: http://www.uni-marburg.de/fb02/accountingandfinance/team

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