Debt composition and lax screening in the corporate bond market

Uri Benzion, Koresh Galil, Eyal Lahav, Offer Moshe Shapir

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Corporate bond markets may suffer from investors’ lack of competence in screening out low-quality issuers. We use data from the Israeli capital market in 1999–2009 to investigate the quality of corporate bond issuers and the role of the institutional investors in the screening process in the corporate bond market. The findings suggest that higher quality firms were more likely to issue bonds, but firms of lower quality tended to raise a higher fraction of their debt through bond issuance. Firms with higher proportion of their debt in bonds out had also a higher tendency to default. Institutional investors intensively funded firms with higher share of bonds in their long-term debt despite their lower quality, and therefore were partially responsible for the lax screening in the corporate bond market.

Original languageEnglish
Pages (from-to)178-189
Number of pages12
JournalInternational Review of Economics and Finance
Volume56
DOIs
StatePublished - 1 Jul 2018

Keywords

  • Corporate bonds
  • Credit rating
  • Debt composition
  • Emerging market
  • Institutional investors

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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