FRIC/Finance Seminar with Dong Yan, Stockholm School of Economics
The Department of Finance and the Center for Financial Frictions (FRIC) is proud to announce the upcoming seminar with Dong Yan, Stockholm School of Economics.
Dong Yan will present: Credit Risk and the Life Cycle of Callable Bon ds: Implications for Real Corporate Decisions
We show that callable bonds have both higher yields and lower market prices than non-callable bonds of the same issuer, reflecting the value of call features to issuers and investors. This “cost of callability” and both the inclusion and the exercise of call rights are determined by levels and changes in issuer-specific credit quality. Our agency-based theoretical and empirical analyses further demonstrate that callability reduces debt overhang in corporate mergers and investment. Our results help explain the value and prevalence of callable bonds. They suggest that debt callability is a key capital structure parameter.
Solbjerg Plads 3