Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses

74 Pages Posted: 6 Aug 2019

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Mauricio Larrain

Columbia University

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Tomas Williams

George Washington University; George Washington University - Elliott School of International Affairs (ESIA)

Multiple version iconThere are 2 versions of this paper

Date Written: June 17, 2019

Abstract

Emerging market corporations have significantly increased their borrowing in international markets since 2008. This paper shows that this increase was driven by large-denomination bond issuances, most of them with face value of US$500 million. Large issuances are eligible for inclusion in international market indexes, which attract institutional investors. Emerging market firms were able to cut their cost of funds by roughly 100 basis points by issuing large-denomination bonds. Firms face a tradeoff: issue large, index-eligible bonds to borrow at a lower cost (about 100 basis points) but pay the expense of hoarding cash. Because of the "size yield discount," many companies issued index-eligible bonds, increasing their cash holdings. The willingness to issue large bonds and hoard cash was greater for firms in countries with high carry trade opportunities. These post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities and are not apparent in developed economies.

Keywords: International Trade and Trade Rules, Mutual Funds, Capital Flows, Capital Markets and Capital Flows, Non Bank Financial Institutions, Public Sector Economics, Public Finance Decentralization and Poverty Reduction, Commodity Risk Management

Suggested Citation

Calomiris, Charles W. and Larrain, Mauricio and Schmukler, Sergio and Williams, Tomas, Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses (June 17, 2019). World Bank Policy Research Working Paper No. 8890. Available at SSRN: https://ssrn.com/abstract=3430499

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
601 Uris, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mauricio Larrain

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

Tomas Williams

George Washington University ( email )

Monroe Hall, Suite 340
2115 G Street, NW
Washington, DC 20052
United States

HOME PAGE: http://tomas-williams.com/

George Washington University - Elliott School of International Affairs (ESIA) ( email )

2201 G Street, N.W.
Washington, DC 20052
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
17
Abstract Views
71
PlumX Metrics