ICEF/LFE Research Seminar by Andriy Bodnaruk (UIC)
Speaker: Andriy Bodnaruk (UIC)Theme: "Shareholders as Creditors of First Resort" joint with Marco Rossi
Abstract: We study firm decisions to enter public bond markets for the first time (bond IPOs). We show that a firm’s ability to access the public bond market is greatly improved when “habitual dual holders” (HDHs) – financial conglomerates that tend to simultaneously hold both equity and bonds of their portfolio firms – are among its shareholders. HDHs are more likely to buy bonds in a bond IPO and to take larger bond positions than bond investors with no equity in the firm. Greater equity ownership by HDHs is associated with a higher fraction of the issue ending up in the hands of pre-IPO shareholders, lower offering yield spreads, and more covenants overall but fewer covenants that restrict payout to shareholders. Our results suggest that the salience of public information about portfolio firms within financial groups reduces the segmentation between debt and equity markets, and facilitates firms’ access to new sources of financing.