Security Fungibility and the Cost of Capital: Evidence from Global Bonds

44 Pages Posted: 12 Apr 2005  

Darius P. Miller

Southern Methodist University (SMU) - Edwin L. Cox School of Business

John Puthenpurackal

University of Nevada, Las Vegas - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2005

Abstract

This paper examines the potential benefits of security fungibility by conducting the first comprehensive analysis of Global bonds. Unlike other debt securities, Global bonds' fungibility allows them to be placed simultaneously in bond markets around the world; they trade, clear and settle efficiently within as well as across markets. We test the impact of issuing these securities on firms' cost of capital, issuing costs, liquidity and shareholder wealth. Using a sample of 230 Global bond issues by 94 companies from the U.S. and abroad over the period 1996-2003, we find that firms are able to lower their cost of (debt) capital by issuing these fungible securities. We also document that the stock price reaction to the announcement of Global bond issuance is positive and significant, while comparable domestic and Eurobond issues over the same time period are associated with insignificant changes in shareholder wealth.

Keywords: Global bonds, security fungibility, cost of capital, international capital raising

JEL Classification: F3, G1, G3

Suggested Citation

Miller, Darius P. and Puthenpurackal, John, Security Fungibility and the Cost of Capital: Evidence from Global Bonds (January 2005). ECB Working Paper No. 426; Indiana University/Ohio University Working Paper. Available at SSRN: https://ssrn.com/abstract=396482

Darius P. Miller (Contact Author)

Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

John Puthenpurackal

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States

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