Private Bond Research Articles

Firm Types and Managerial Capital: Findings from Private Bond Contracts

Field experiments have variously discovered that modern management practices can enhance productivity, but not all firms adopt such practices. In this study, we examine private bond contracts used by the Public House operators to explore if such variations are due to differences in the types of the firms. Asset-backed bonds entail operating covenants restricting management actions in areas such as acquisitions and disposals. We find that managed firms that provide greater flexibility in managing their operations are more responsive to these covenants then the tenanted firms. We also show that middle-level management practices are strongly associated with improved establishment performance.

Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan

This study uses quarterly data from 1973 to 2007 to investigate the influence of financial institutions on economic growth in Taiwan. We find that the breakpoint obtained by Gregory and Hansen (1996) appears in the third quarter of 1982, which coincides with the period of financial openness. In addition, the substitution effect between credit and equity markets is improved following financial openness. The negative impact of volatility on real output before financial openness turned positive after financial openness, suggesting that appropriate volatility enhances Taiwan's economic growth under the circumstance of more matured stock market following financial openness. However, the beneficial influence of liquidity on real output before financial openness turned negative afterward, suggesting openness generated the undesirable side effect of excess liquidity that impeded economic growth. Our long-run results are essentially the same even if we take the role of the private bond market into account.

Political friendship in the era of ‘the social’: Theorizing personal relations with Alexis de Tocqueville

This article examines the contribution Tocqueville’s work can make to recent scholarly debates on political friendship in modernity. Tocqueville, unlike most modern classical social theorists, does not treat friendship as a private bond devoid of political significance. For him, political friendship contributes to the success of democracy and is so crucial that its absence leads to despotism. The reason Tocqueville is attuned to the political significance of personal bonds when most modern theorists are not is his interpretation of ‘the social.’ This article investigates Tocqueville’s account of political friendship relative to his analysis of the new social basis of modern democracies. I argue that, in linking friendship to the social, Tocqueville provides an account of political friendship apposite to a modern society of strangers.

Financial System Components - Substitutes or Complements?

Prior studies have examined the development of the financial system and its impact on economic growth, but little has been said about the relationship between its four major components: banking, the stock market, the bond market (private and public bond) and insurance (life and nonlife). Using a dynamic panel of 106 countries over the period 1980-2007, we use the GMM (generalized-method-of-moments) system estimator to observe the pair-wise relationships between these components. Our findings show a high level of interdependence. When evaluated at the average level of each component’s development, the majority of the pair-wise relationships reveal that one component will act as a substitute for the other. This should be taken into consideration for policies relating to growth in the financial sector.

Development of Financial Markets in Central Europe: The Case of the CE4 Countries

Financial markets in the CE4 countries are still shallow compared to other advanced EU countries. While the government bond markets are comparable in size, measured by capitalization in percent of GDP, the private bond, private credit, and equity markets lag behind. Empirical analysis in this paper helps identify factors that explain this phenomenon. We find that the observed differences cannot be explained by macroeconomic variables only, but incorporating indicators of institutional development and external funding eliminates the gap in the case of the equity and private credit markets. However, for the private bond market a significant gap remains even after accounting for these factors.

Development of Financial Markets in Central Europe: The Case of the Ce4 Countries

Financial markets in the CE4 countries are still shallow compared to other advanced EU countries. While the government bond markets are comparable in size, measured by capitalization in percent of GDP, the private bond, private credit, and equity markets lag behind. Empirical analysis in this paper helps identify factors that explain this phenomenon. We find that the observed differences cannot be explained by macroeconomic variables only, but incorporating indicators of institutional development and external funding eliminates the gap in the case of the equity and private credit markets. However, for the private bond market a significant gap remains even after accounting for these factors.

Wealth Inequality and the Optimal Level of Government Debt

In this paper, we quantitatively analyze to what extent a benevolent government should issue debt in a model where households are subject to idiosyncratic productivity shocks, insurance markets are missing and borrowing is restricted. In this environment, issuing government bonds facilitates saving for self-insurance. Despite this, we find that in a calibrated version of the model that is consistent with the skewed wealth and earnings distribution observable in the U.S., the government should buy private bonds, and not issue public debt in the long run. The reason is that in the U.S., a large fraction of the population has almost no wealth or is even in debt. The wealth-poor, however, do not profit from an increase in the interest rate following an increase in public debt. Instead, they gain from higher wages that result from a reduction in debt. We show that even when the short run costs of higher capital taxation are taken into account, it still pays off to reduce government debt on overall. Moreover, we find that endogenizing household’s borrowing constraints by assuming limited commitment leads to even higher asset levels being optimal in the long run.

Who Drove the Boom in Euro-Denominated Bond Issues?

We make use of micro-level data for over 45,000 private bond issues by over 5000 firms from 22 countries in 1990-2006 to analyze the impact that the launch of the EMU had on their currency denomination. The use of the micro data allows us to isolate the effect on new and seasoned bond issuers while conditioning on individual issue characteristics. To our knowledge, ours is the first systematic analysis of this topic the micro level. We find that the impact on new issuers is larger than on seasoned issuers and that most of the increase in the euro-denominated bond issuance by seasoned borrowers was along the extensive margin, i.e. borrowers switching currency denomination of their issues. Insofar as new entrants to the bond market will define the overall currency composition in the long run, these results imply that aggregate studies might be underestimating the euro effect. We also find that to a large extent the increase in euro issuance was at the expense of U.S. dollar issuance, suggesting that euro competes with the U.S. dollar as a currency of choice for international - financial transactions.

MONETARY TRANSMISSION MECHANISM IN CENTRAL AND EASTERN EUROPE: SURVEYING THE SURVEYABLE

Abstract This paper surveys recent advances in empirical studies of the monetary transmission mechanism, with special attention to Central and Eastern Europe (CEE). Our results indicate that the strength of the exchange rate pass‐through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so‐called composition effect. The asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic households. House prices may become an exception with booming mortgage lending and with high owner occupancy ratios. While the credit channel could be a powerful channel of monetary transmission – as new funds raised on capital markets are close to zero in CEE – it is actually not, as both commercial banks and non‐financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies. The moderately good news, however, is that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area.

Who Drove the Boom in Euro-Denominated Bond Issues?

We make use of micro-level data for over 45,000 private bond issues by over 5000 firms from 22 countries in 1990-2006 to analyze the impact that the launch of the EMU had on their currency denomination. The use of the micro data allows us to isolate the "euro effect" on new and seasoned bond issuers while conditioning on individual issue characteristics. To our knowledge, ours is the first systematic analysis of this topic at the micro level. We find that the impact on new issuers is larger than on seasoned issuers and that most of the increase in the euro-denominated bond issuance by seasoned borrowers was along the "extensive" margin, i.e. borrowers switching currency denomination of their issues. Insofar as new entrants to the bond market will define the overall currency composition in the long run, these results imply that aggregate studies might be underestimating the euro effect. We also find that to a large extent the increase in euro issuance was "at the expense" of U.S. dollar issuance, suggesting that euro competes with the U.S. dollar as a currency of choice for international financial transactions.

Correlation of the Indicators of the Financial system and Gross Domestic Product in European Union Countries

At the end of the 20th century and beginning of the 21st century the tendencies of development of the financial system and problems arising in this sector are more and more often becoming the object of scientific research as successfully functioning financial sector in every country is an important precondition for the growth of economy. Upon analyzing the development of the financial system and the influencing factors the problem of influence of the formed financial structure on economic processes cannot be dissociated from it. Indicators of development of the bank sector were used in the research to establish the correlation of the financial sector and gross domestic product of the countries of the European Union: Central bank assets/ Total financial assets, Deposit money bank assets/ Total financial asset, Other financial institutions assets/Total financial assets, Deposit money bank/(Deposit money bank + Central bank) assets, Liquid liabilities/GD, Central bank assets/GDP, Deposit money bank assets/GDP, Other financial institutions assets/GDP, Bank deposits/GDP, Financial system deposits/GDP, Private credit by deposit money banks/GDP, Private credit by deposit money banks and other financial institutions /GDP, Overhead costs and Net interest margin. Indicators of development of the market are: Stock market capitalization/GDP, Private bond market capitalization/GDP, Public bond market capitalization/GDP, Stock market total value traded/GDP and Stock market turnover ratio. Indicators of development of the insurance are: Life insurance penetration and Non - life insurance penetration. The obtained results do not confirm the researches of other authors, who analyzed the dependency of the financial sector and the growth of economy of the “old” European Union countries, as it is stated that the growth of economy determines the formation of the structure of a market-based financial system, and with the domination of a strong bank sector in the Baltic States even in rapidly growing economy, dominant strong banking sector and law average GDP per capita, does not create conditions for the formation of a market-based financial structure.

How Does Reputation Influence a Firm's Decision to Issue Corporate Bonds? New Evidence from Initial and Seasoned Public Debt Offerings

Why does a firm make the financially significant decision to issue bonds and what influences that decision? We find ex-ante characteristics determining creditworthiness and incentives to raise external finance are influential, but direct bond market reputation is more important: for a given set of characteristics a firm is more likely to issue if it has done so previously. We offer a new analysis that complements existing studies of private versus public bond issues, the scale and timing of IPOs and the effect of reputation on the financing of the firm. Our paper offers a theoretical extension of the Holmstrom and Tirole (1997) framework and an empirical assessment using a panel of 983 US firms from 1995-2004 to show firms with greater reputation and signals of creditworthiness and incentives to raise external finance access bond markets with higher probability than other firms.

The decision to first enter the public bond market: The role of firm reputation, funding choices, and bank relationships

This paper uses survival analysis to investigate the timing of a firm’s decision to issue for the first time in the public bond market. We find that firms that are more creditworthy and have higher demand for external funds issue their first public bond earlier. We also find that issuing private bonds or taking out syndicated loans is associated with a faster entry to the public bond market. According to our results, the relationships that firms develop with investment banks in connection with their private bond issues and syndicated loans further speed up their entry to the public bond market. Finally, we find that a firm’s reputation has a “U-shaped” effect on the timing of a firm’s bond IPO. Consistent with Diamond’s reputational theory, firms that establish a track record of high creditworthiness as well as those that establish a track record of low creditworthiness enter the public bond market earlier than firms with intermediate reputation.

Who Drove the Boom in Euro-Denominated Bond Issues?

We make use of micro-level data for over 45,000 private bonds issued by over 5000 firms from 22 countries in 1990-2006 to analyze the impact that the launch of the EMU had on the currency denomination of the bond issues. To our knowledge, ours is the first systematic analysis of issue the micro level. The use of the micro data allows us to distinguish between the response to the advent of the euro by new and seasoned bond issuers, and to condition on other issue characteristics. We find that the impact on new issuers is larger than on seasoned issuers and that most of the increase in the euro-denominated bond issuance was along the extensive margin. Insofar as new entrants to the bond market will define the overall currency composition in the long run, these results imply that aggregate studies might be underestimating the euro effect. We also find that to a large extent the increase in euro issuance was at the expense of U.S. dollar issuance, suggesting that the euro competes with the U.S. dollar as a currency of choice for international financial transactions.

The Under-Reporting of Financial Wealth in the Survey on Household Income and Wealth

The sample estimates are uniformly below those of the Financial Accounts, even after harmonising all the definitions and the evaluation criteria. Such a problem can stem from the interviewee's unwillingness to disclose the actual value of the asset (under-reporting). The paper presents a method to correct this potential source of bias in order to improve Survey of Household Income and Wealth financial assets. We use a sample survey of customers of the Unicredit group, coupled with administrative data on the assets actually owned, as external sources of information. The adjustment procedure enables to account for a large share of the gap between the figures derived from the sample and from the Financial accounts, significantly increasing the average value of the financial assets (inflating the unadjusted figure of 22.000 euros to 59.000 euros, amounting to about 85 percent of the Financial account estimates). The adjustment produces a larger correction for private bonds and mutual funds. The intensity of the correction is higher for one-person households, when the head of household is less educated or not employed, and it raises with his/her age.

Evidence on the Costs and Benefits of Bond IPOs

This paper investigates whether it is costly for non–financial firms to enter the public bond market, and whether firms benefit from their bond IPOs. We find that both gross spreads and ex-ante credit spreads are higher for IPO bonds, suggesting that firms pay higher underwriting costs on their first public bond. We also find that underpricing in the secondary market is higher for IPO bonds, further suggesting that it is costly to enter the public bond market. The costs of entering the public bond market are economically meaningful and are higher for risky firms. We investigate the benefits from entering the public bond market, by looking at the costs firms pay to raise external funding subsequently to their bond IPOs. Our results show that these benefits exist, but they accrue only to safe firms. These firms benefit from a reduction both in the interest rates they pay on bank loans and the costs they incur to issue private bonds after they enter the public bond market. Together with our the previous findings, these results lend support to the thesis that bond IPOs are unique.

The European Bond Markets under EMU

In this paper, we document how, in the wake of monetary unification, the markets for euro-area sovereign and private-sector bonds have become increasingly integrated. Issuers and investors alike have come to regard the euro-area bond market as a single one. Primary and secondary bond markets have become increasingly integrated on a pan-European scale. Issuance of corporate bonds has taken off on an unprecedented scale in continental Europe. In the process, both investors and issuers have reaped the considerable benefits afforded by greater competition in the underwriting of private bonds and auctioning of public ones, and by the greater liquidity of secondary markets. Bond yields have converged dramatically in the transition to EMU. The persistence of small and variable yield differentials for sovereign debt under EMU indicates that euro-area bonds are still not perfect substitutes. However, to a large extent, this does not reflect persistent market segmentation but rather small differentials in fundamental risk. Liquidity differences play at most a minor role, and this role appears to arise partly from their interaction with fundamental risk. The challenges still lying ahead are numerous. They include: the imbalance between the German-dominated futures and the underlying cash market; the vulnerability of the cash markets' prices to free-riding and manipulation by large financial institutions; the possibility of joint bond issuance by euro-area countries; the integration of clearing and settlement systems in the euro-area bond market; and the participation of new accession countries' issuers in this market. Copyright 2004, Oxford University Press.

Resistances of Gender

Resistances of Gender

The Personal is (Still) Political: Marriage, Citizenship, and Women's and Gender History

In the past year, the political ramifications of so-called personal life, especially marriage, have emerged in unexpected ways. There has been Republican outrage at the so-called tax and panic at the prospect of gay marriages in Hawaii and Vermont. Delegates at the annual Baptist convention declared that it should be harder for couples to end their marriages, and a recent Supreme Court decision affirmed that motherhood but not fatherhood confers citizenship on illegitimate children. These are just some incidents suggesting the degree to which marriage as an institution alternatively delineates and blurs the boundaries between public and private life. Women's history has long been interested in investigating the murky line between public and private life, but few scholars have explored this vexed relationship with the clarity or impact as has Nancy Cott. In Public Vows: A History of Marriage and the Nation, Cott offers a compelling history of marriage as at once that most private and most public of institutions. Cott brings to her history of marriage a formidable history of her own as one of the most influential women's historians in the field. In 1977, she published The Bonds of Womanhood: 'Woman's Sphere' in New England, 17801835. The white women in the domestic sphere who were the subjects of this groundbreaking study were in a bondage, of sorts, excluded as they were from the public sphere of a developing market economy and politics. At the same time, Cott argued that the private bonds between women were empowering and laid the foundation for women's rights advocacy. The clever play on words in the book's title suggested that any simple dichotomy between public and private was problematic. With that insight, Cott helped set the terms of the discussion for the explosion of scholarship on nineteenth-century women that followed-scholarship showing an interest in the private lives of women formerly marginal to historical narratives, coupled with the assumption that this recovery involved more than a straightforward acceptance of separate spheres as a model.1

Choice of Financing Source in International Debt Markets

This paper examines incremental debt financing decisions of large Asian firms over the period 1989–1998. We find that flotation costs, agency costs, and renegotiation and liquidation risk affect the choice of debt type and that firms in countries with well developed private bond markets have a higher probability of accessing international bond markets. Significant differences exist between the determinants of choice of debt type across Japanese and non-Japanese firms that cannot be explained by keiretsu associations. Moreover, there is no significant difference in the determinants of financing source for Japanese firms across independent firms, horizontal keiretsus, and vertical keiretsus. Journal of Economic Literature Classification Number: F39, G15, G21, G32.