Relationship Lending in Bond Markets? Evidence From Corporate Call Policies *

51 Pages Posted: 1 Sep 2023 Last revised: 27 Nov 2023

See all articles by Paul Beaumont

Paul Beaumont

McGill University - Desautels Faculty of Management

David Schumacher

McGill University

Gregory Weitzner

McGill University

Date Written: November 20, 2023

Abstract

Can relationship lending be sustained in public financial markets? We use firms' call decisions as a laboratory to study this question. After a fixed-price call forces existing bondholders to sell their bonds back at below market prices, existing bondholders are far less likely to participate in firms' subsequent bond issuances. The effects are strongest for the largest fund families, such that the call leads to a reduction in their total ownership of these firms' bonds. In turn, firms delay calling their bonds when they have more large fund families in their bondholder base. Finally, firms' borrowing costs are affected by the reputation they develop from their past call decisions. Our results reveal the importance of relationship lending in bond markets and show how firms' financial policies affect these relationships.

Keywords: reputation, relationship lending, bond markets, call policy

Suggested Citation

Beaumont, Paul and Schumacher, David and Weitzner, Gregory, Relationship Lending in Bond Markets? Evidence From Corporate Call Policies * (November 20, 2023). Available at SSRN: https://ssrn.com/abstract=4558328 or http://dx.doi.org/10.2139/ssrn.4558328

Paul Beaumont

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

HOME PAGE: http://https://paulhbeaumont.github.io/

David Schumacher (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
5143984778 (Phone)

HOME PAGE: http://www.davidschumacher.info

Gregory Weitzner

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

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