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THE CHOICE BETWEEN CALLABLE AND NONCALLABLE BONDS
Author(s) -
Booth Laurence,
Gounopoulos Dimitrios,
Skinner Frank
Publication year - 2014
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12042
Subject(s) - callable bond , bond , prospectus , business , agency (philosophy) , popularity , agency cost , economics , finance , monetary economics , corporate governance , shareholder , psychology , social psychology , philosophy , epistemology
We examine the choice and the offer spreads between callable and noncallable bonds. We find significant differences by industry sector and therefore segment our results by financial and nonfinancial industries. For the financial sector, the popularity of callable and noncallable bonds is significantly related to the economic environment. Financial and high‐grade nonfinancial callable bonds are also more likely to be issued via a shelf prospectus. Although firms that issue callable bonds do not consistently display the characteristics associated with severe agency problems, the issue choice for below‐investment‐grade nonfinancial and lower rated financial bonds, where we can expect agency problems to be more severe, is more consistent with agency theory than is the issue choice for higher rated bonds.