Information Environment and the Cost of Borrowing in the International Bond Market

36 Pages Posted: 15 Nov 2019

See all articles by Hua Deng

Hua Deng

The Australian National University; Financial Research Network (FIRN)

Fariborz Moshirian

Institute of Global Finance, UNSW Business School

Yaxuan Qi

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: October 1, 2019

Abstract

We examine whether and how a firm's information environment – as characterized by earnings quality, analyst forecast dispersion, and the probability of informed trading – affects its total cost of borrowing in the international bond market. Both yield spread required by investors and the issuance costs such as underwriting fee, management fee and selling concession fee are examined. Using a sample of Eurobonds issued by firms across 38 countries, we find that bonds issued by firms with poor information environments are associated with higher yield spreads, lower credit ratings, greater probability of split bond ratings, and higher issuance cost. The firms characterized by poorer information environment are considered riskier issuers by underwriters, thus bonds issued by these firms are more likely to be offered in syndication by more managers and are charged with higher fees. We demonstrate that information environment plays a crucial role in determining the total cost of borrowing for firms raising capital in the international bond market.

Keywords: information environment, borrowing costs, international bond market

JEL Classification: G12, G14, M41, M48

Suggested Citation

Deng, Hua and Moshirian, Fariborz and Qi, Yaxuan and Zhang, Bohui, Information Environment and the Cost of Borrowing in the International Bond Market (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3482229 or http://dx.doi.org/10.2139/ssrn.3482229

Hua Deng (Contact Author)

The Australian National University ( email )

Canberra
Australia
61-2-6125 6700 (Phone)
61-2-6125 0087 (Fax)

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Fariborz Moshirian

Institute of Global Finance, UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61 2 93855859 (Phone)
+61 2 94877519 (Fax)

Yaxuan Qi

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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