DO INDONESIAN MANAGERS TIME THEIR CORPORATE BONDS?

Christine Andreani,Dewi Tamara

doi:10.21512/jafa.v5i2.793

Abstract

Corporate bonds are becoming popular in Indonesian capital market due to the ongoing decline in interest rates and the increase in credit rating. Debt Market Timing Theory argues that managers try to time their bonds issuance according to the market interest rate, relatively. This paper aims to analyze the debt issuance timing profile of Indonesian public listed companies. The samples are 24 bonds issuances, which have maturity period between 3 to 7, and companies already issued more than 1 bond issued within year 2009 and 2011. The manager’s behavior to time government bond rates is observed in the 5 working days window, whether the corporate bonds being issued at the lowest market interest rate (i.e., government bond rates) on the window. Bootstrap method is utilized to construct counterfactual data. The research finds that 7 out of 24 bonds issuance were issued at the lowest government bond yield within the window. Indonesian public listed companies had no ability to time their bond issuances during period 2009 until 2011. This paper reveals that the frequency of bond issuances made by each Indonesian company does not necessarily determine their capability to time government bond rates. However, bootstrap is a useful and more robust tool to help assessing the debt market timing ability when the samples taken are small in numbers.

Highlights

Corporate bond has grown rapidly in Indonesian capital market since the beginning of 2003 (Asian Development Bank (ADB) Team, 2012)
In conducting One Sample T-Test, the amount inputted in the box “test value” will be based on the three conditions, the amount of the rmin, rmean and rmax from the total bootstrap window for all 24 bonds issuances presented in table 4.16
Bond is becoming popular in Indonesian capital market as there is an ongoing decline in interest rates and ongoing increase in the credit rating of Indonesian bond

Summary

Introduction

Background Corporate bond has grown rapidly in Indonesian capital market since the beginning of 2003 (Asian Development Bank (ADB) Team, 2012). In the first two months of 2012, 6.75 trillion rupiah has been raised in the bond market compared to only 2.32 trillion rupiah in share Initial Public Offerings (IPOs) and right issues in the stock market (Indonomics, 2012). The reason behind this popularity are the ongoing decline of Indonesian interest rates in recent years and the bonds rating that has been upgraded to investment grade credit rating by Fitch Rating Agency in 2012 (Bloomberg, 2012). All these corporate bonds are those that were issued through Exchange Traded

Objectives

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Conclusion