Complementarities in Corporate Bond Design

49 Pages Posted: 10 May 2018

See all articles by Robert L. Kieschnick

Robert L. Kieschnick

University of Texas at Dallas

Malcolm Wardlaw

University of Michigan, Stephen M. Ross School of Business; University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Date Written: March 19, 2018

Abstract

This study examines the choices that corporations make regarding the different contractual features defining their bonds. Using data on new corporate bond issues from 1990 through 2012, we find that corporate bonds are packages of different provisions and restrictions reflecting complementarities between bond features that change with issuer characteristics. Certain collections of features represent strong complements, while others act as broad substitutes. We accordingly observe a surprisingly limited number of bond packages. Since these features strongly interact with each other in the observed choices of firm, the determinants of individual covenants and bond provisions are highly conditional on choices for the entire package.

Keywords: bonds, bond design, covenants

JEL Classification: G12, G19, G32, G39

Suggested Citation

Kieschnick, Robert L. and Wardlaw, Malcolm, Complementarities in Corporate Bond Design (March 19, 2018). Available at SSRN: https://ssrn.com/abstract=3167967 or http://dx.doi.org/10.2139/ssrn.3167967

Robert L. Kieschnick

University of Texas at Dallas ( email )

800 W. Campbell Rd, SM31
Richardson, TX 75080
United States
972-883-6273 (Phone)

HOME PAGE: http://www.utdallas.edu/~rkiesch/

Malcolm Wardlaw (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States
972-883-5903 (Phone)

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