Publication: Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses
Abstract
Emerging market corporations have
significantly increased their borrowing in international
markets since 2008. This paper shows that this increase was
driven by large-denomination bond issuances, most of them
with face value of US$500 million. Large issuances are
eligible for inclusion in international market indexes,
which attract institutional investors. Emerging market firms
were able to cut their cost of funds by roughly 100 basis
points by issuing large-denomination bonds. Firms face a
tradeoff: issue large, index-eligible bonds to borrow at a
lower cost (about 100 basis points) but pay the expense of
hoarding cash. Because of the "size yield
discount," many companies issued index-eligible bonds,
increasing their cash holdings. The willingness to issue
large bonds and hoard cash was greater for firms in
countries with high carry trade opportunities. These
post-2008 behaviors reflected a search for yield by
institutional investors into higher-risk securities and are
not apparent in developed economies.
Link to Data Set
Citation
“Calomiris, Charles W.; Larrain, Mauricio; Schmukler, Sergio L.; Williams, Tomas. 2019. Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses. Policy Research Working Paper;No. 8890. © World Bank, Washington, DC. http://hdl.handle.net/10986/31903 License: CC BY 3.0 IGO.”
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