Complementarities in Corporate Bond Design
49 Pages Posted: 10 May 2018
Date Written: March 19, 2018
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: Suggested Citation