Call Timing of Callable Non-Convertible Bonds: A Survival Analysis
DOI:
https://doi.org/10.6000/1929-7092.2018.07.28Keywords:
Call hazard rate, callable non-convertible bond, embedded call option, percentage life, duration.Abstract
We empirically analyze the factors affecting corporate decisions to call non-convertible bonds using survival analysis. The results show that firms tend to defer calling non-convertible bonds in order to mitigate agency costs of debt (including under-investment and risk-shift); that calling is significantly more intense if positive information is revealed; that non-refundability clauses are binding on call decisions; that firms are more likely to redeem bonds to refund if market interest rates fall dramatically; and that this interest effect is stronger as the transaction costs of refunding decrease. Also, this paper shows that call intensity monotonically decreases after call protection periods expire.
References
Allen, D. S., R. E. Lamy, and G. R. Thompson. 1987. “Agency Costs and Alternative Call Provisions: An Empirical Investigation.” Financial Management (16): 37-44.
https://doi.org/10.2307/3666107
Barnea, A., R. A. Haugen, and L. W. Senbet. 1980. “A Rationale for Debt Maturity Structure and Call Provisions in the Agency Theoretic Framework.” Journal of Finance (35): 1223-34.
https://doi.org/10.1111/j.1540-6261.1980.tb02205.x
Boyce, W. M., and A. J. Kalotay. 1979. “Tax Differentials and Callable Bonds.” Journal of Finance (34): 825-38.
https://doi.org/10.1111/j.1540-6261.1979.tb03438.x
Cornett, M. M., and N. G. Travlos. 1989. “Information Effects Associated with Debt-for-Equity and Equity-for-Debt Exchange Offers.” Journal of Finance (44): 451-68.
https://doi.org/10.1111/j.1540-6261.1989.tb05065.x
Crabbe, L. E., and J. Helwege. 1994. “Alternative Tests of Agency Theories of Callable Corporate Bonds.” Financial management (23): 3-20.
https://doi.org/10.2307/3666079
Fischer, E. O., R. Heinkel, and J. Zechner. 1989. “Dynamic Recapitalization Policies and the Role of Call Premia and Issue Discounts.” Journal of Financial and Quantitative Analysis (24): 427-46.
https://doi.org/10.2307/2330977
Green, R. C. 1984. “Investment Incentives, Debt and Warrants.” Journal of Financial Economics (13): 115-36.
https://doi.org/10.1016/0304-405X(84)90034-5
King, T. D. and D. Mauer. 2000. “Corporate Call Policy for Nonconvertible Bonds.” Journal of Business (73): 403-44.
https://doi.org/10.1086/209648
Kish, R. J., and Livingston, M. 1992. “Determinants of the Call Option on Corporate Bonds.” Journal of Banking and Finance (16): 687-703.
https://doi.org/10.1016/0378-4266(92)90002-H
Myers, S. C., and N. S. Majluf. 1984. “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics (13): 187-221.
https://doi.org/10.1016/0304-405X(84)90023-0
Narayanan, M. P., and S. Lim. 1989. “On the Call Provision in Corporate Zero-Coupon Bonds.” Journal of Financial and Quantitative Analysis (24): 91-103.
https://doi.org/10.2307/2330750
Pye, G.. 1966. The Value of the Call Option on a Bond. Journal of Political Economy (74): 200-5.
https://doi.org/10.1086/259137
Robbins, E. H., and J. D. Schatzberg. 1986. “Callable Bonds: A Risk-Reducing Signaling Mechanism.” Journal of Finance (41): 935-949.
https://doi.org/10.1111/j.1540-6261.1986.tb04558.x
Sarkar, S. 2001. “Probability of Call and Likelihood of the Call Feature in a Corporate Bond.” Journal of Banking and Finance (25): 505-33.
https://doi.org/10.1016/S0378-4266(00)00085-6
Smith, C. M., and J. B. Warner. 1979. “On Financial Contracting: An Analysis of Bond Covenants.” Journal of Financial Economics (7): 117-61.
https://doi.org/10.1016/0304-405X(79)90011-4
Stein, J. C. 1992. “Convertible Bonds as Backdoor Equity Financing.” Journal of Financial Economics (32): 3-21.
https://doi.org/10.1016/0304-405X(92)90022-P
Thatcher, J. S. 1985. “The Choice of Call Provision Terms: Evidence of the Existence of Agency Costs of Debt.” Journal of Finance (40): 549-61.
https://doi.org/10.1111/j.1540-6261.1985.tb04972.x
Titman, S., and R. Wessels. 1988. “The Determinants of Capital Structure Choice.” Journal of Finance (43): 1-19.
https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
Vu, J. D. 1986. “An Empirical Investigation of Calls of Non-Convertible Bonds.” Journal of Financial Economics (16): 235-65.
https://doi.org/10.1016/0304-405X(86)90062-0
https://doi.org/10.2307/3666107
Barnea, A., R. A. Haugen, and L. W. Senbet. 1980. “A Rationale for Debt Maturity Structure and Call Provisions in the Agency Theoretic Framework.” Journal of Finance (35): 1223-34.
https://doi.org/10.1111/j.1540-6261.1980.tb02205.x
Boyce, W. M., and A. J. Kalotay. 1979. “Tax Differentials and Callable Bonds.” Journal of Finance (34): 825-38.
https://doi.org/10.1111/j.1540-6261.1979.tb03438.x
Cornett, M. M., and N. G. Travlos. 1989. “Information Effects Associated with Debt-for-Equity and Equity-for-Debt Exchange Offers.” Journal of Finance (44): 451-68.
https://doi.org/10.1111/j.1540-6261.1989.tb05065.x
Crabbe, L. E., and J. Helwege. 1994. “Alternative Tests of Agency Theories of Callable Corporate Bonds.” Financial management (23): 3-20.
https://doi.org/10.2307/3666079
Fischer, E. O., R. Heinkel, and J. Zechner. 1989. “Dynamic Recapitalization Policies and the Role of Call Premia and Issue Discounts.” Journal of Financial and Quantitative Analysis (24): 427-46.
https://doi.org/10.2307/2330977
Green, R. C. 1984. “Investment Incentives, Debt and Warrants.” Journal of Financial Economics (13): 115-36.
https://doi.org/10.1016/0304-405X(84)90034-5
King, T. D. and D. Mauer. 2000. “Corporate Call Policy for Nonconvertible Bonds.” Journal of Business (73): 403-44.
https://doi.org/10.1086/209648
Kish, R. J., and Livingston, M. 1992. “Determinants of the Call Option on Corporate Bonds.” Journal of Banking and Finance (16): 687-703.
https://doi.org/10.1016/0378-4266(92)90002-H
Myers, S. C., and N. S. Majluf. 1984. “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics (13): 187-221.
https://doi.org/10.1016/0304-405X(84)90023-0
Narayanan, M. P., and S. Lim. 1989. “On the Call Provision in Corporate Zero-Coupon Bonds.” Journal of Financial and Quantitative Analysis (24): 91-103.
https://doi.org/10.2307/2330750
Pye, G.. 1966. The Value of the Call Option on a Bond. Journal of Political Economy (74): 200-5.
https://doi.org/10.1086/259137
Robbins, E. H., and J. D. Schatzberg. 1986. “Callable Bonds: A Risk-Reducing Signaling Mechanism.” Journal of Finance (41): 935-949.
https://doi.org/10.1111/j.1540-6261.1986.tb04558.x
Sarkar, S. 2001. “Probability of Call and Likelihood of the Call Feature in a Corporate Bond.” Journal of Banking and Finance (25): 505-33.
https://doi.org/10.1016/S0378-4266(00)00085-6
Smith, C. M., and J. B. Warner. 1979. “On Financial Contracting: An Analysis of Bond Covenants.” Journal of Financial Economics (7): 117-61.
https://doi.org/10.1016/0304-405X(79)90011-4
Stein, J. C. 1992. “Convertible Bonds as Backdoor Equity Financing.” Journal of Financial Economics (32): 3-21.
https://doi.org/10.1016/0304-405X(92)90022-P
Thatcher, J. S. 1985. “The Choice of Call Provision Terms: Evidence of the Existence of Agency Costs of Debt.” Journal of Finance (40): 549-61.
https://doi.org/10.1111/j.1540-6261.1985.tb04972.x
Titman, S., and R. Wessels. 1988. “The Determinants of Capital Structure Choice.” Journal of Finance (43): 1-19.
https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
Vu, J. D. 1986. “An Empirical Investigation of Calls of Non-Convertible Bonds.” Journal of Financial Economics (16): 235-65.
https://doi.org/10.1016/0304-405X(86)90062-0
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Published
2018-10-03
How to Cite
Wee, J. B., Ryu, K., & Binh, K. B. (2018). Call Timing of Callable Non-Convertible Bonds: A Survival Analysis. Journal of Reviews on Global Economics, 7, 324–336. https://doi.org/10.6000/1929-7092.2018.07.28
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