Capital Supply and Corporate Bond Issuances: Evidence from Mutual Fund Flows
56 Pages Posted: 3 Apr 2018 Last revised: 3 Aug 2020
Date Written: April 1, 2018
This paper examines how investment behavior of bond mutual funds affects corporate financing decisions. Mutual funds that hold a firm's existing bonds have a high propensity to acquire additional new issuances from the same firm. I utilize this stylized fact to construct a firm-specific bond capital supply measure by aggregating flows from a firm's existing bondholders. Firms with a higher flow-driven capital supply are more likely to issue bonds, enjoy lower yields, and substitute away from equity financing and bank loans. Information acquisition costs and underwriter relationship likely contribute to the impact of flow-driven capital supply.
Keywords: Bond Mutual Funds, Corporate Bond Issuance, Capital Supply, Capital Structure
JEL Classification: G23, G32, G11
Suggested Citation: Suggested Citation