Information Asymmetry and the Bond Coupon Choice

• 成果类型: Article
• 署名作者: Amiram, Dan; Kalay, Alon; Kalay, Avner; Ozel, N. Bugra
• 署名单位: Columbia University; Tel Aviv University; Utah System of Higher Education; University of Utah; University of Texas System; University of Texas Dallas
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51852
• 发表日期: 2018
• 页码: 37-59
• 关键词: regulation fair disclosure; debt maturity choice; REGULATION FD; corporate-debt; RISK; analysts; announcements; determinants; INVESTMENT; governance

摘要

We examine the role of the coupon choice in bond contracts as a signaling mechanism in the presence of information asymmetry between borrowers and lenders about the credit quality of the borrower. Prior literature focuses on the use of maturity as a signaling mechanism. We conjecture that the coupon is a more effective signaling mechanism. We exploit the enactment of Regulation Fair Disclosure (RegFD) as an exogenous shock to the level of information asymmetry, and employ both bond- and equity market-based variables of information asymmetry to test our conjecture. We find that following the enactment of RegFD, the coupon rates of bonds issued by unrated firms increase relatively more than those of rated firms, consistent with the coupon choice addressing information asymmetry. We fail to find similar increases in maturity. Our inferences remain the same when using the probability of informed trade to measure relative changes in information asymmetry around the enactment of RegFD. We also draw similar conclusions utilizing exogenous drops in analyst coverage that result from brokerage house closures as an alternative quasi-natural experiment. Finally, we provide evidence that the coupon is used more extensively when issuance costs are higher, precisely when maturity is predicted to be a less efficient contract term with which to address information asymmetry.