Friday, April 25, 2014

The Variety of Maturities Offered by Firms and Institutional Investment in Corporate Bonds

DASS Nishant, MASSA Massimo
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Review of Financial Studies 27, 7 (2014) 2219-2266

We study how a firm's decision to offer bonds of various maturities affects the portfolio allocations of institutional investors. We argue that because of lower information-collection costs, institutional investors tilt their portfolios towards firms that offer bonds of various maturities. We show that this translates into lower bond yields, both in the primary and in the secondary bond markets.