TY - JOUR
T1 - Liquidity and price pressure in the corporate bond market: evidence from mega-bonds
AU - Adelson, Jean
AU - Wang, Liying
PY - 2021
Y1 - 2021
N2 - Larger bonds offer greater liquidity, which should reduce their yields. A simple way for firms to reduce financing costs is to sell bonds with large face values. We find that mega-bonds are more liquid than smaller bonds. However, offering yield spreads on mega-bonds are not lower and are higher than spreads of bonds issued by similar companies. The discount applied to large new issues is consistent with price pressure effects that are also present in the secondary market prices of the issuing firm's existing bonds. Our results suggest a hidden cost to issuing very liquid bonds.
AB - Larger bonds offer greater liquidity, which should reduce their yields. A simple way for firms to reduce financing costs is to sell bonds with large face values. We find that mega-bonds are more liquid than smaller bonds. However, offering yield spreads on mega-bonds are not lower and are higher than spreads of bonds issued by similar companies. The discount applied to large new issues is consistent with price pressure effects that are also present in the secondary market prices of the issuing firm's existing bonds. Our results suggest a hidden cost to issuing very liquid bonds.
U2 - 10.1016/j.jfi.2021.100922
DO - 10.1016/j.jfi.2021.100922
M3 - Article
VL - 48
SP - 1
EP - 16
JO - Journal of Financial Intermediation
JF - Journal of Financial Intermediation
IS - 2021
ER -