earticle

영어

We investigate a large set of corporate bonds issued in Japan using a competing risks approach and find evidence of self-selection where issuers with unrated, bank-guaranteed bonds have more information asymmetry, are less reliant on bond financing, and possess poorer firm quality. Japanese banks provide credit guarantees to small or opaque firms with weaker financial profiles, thus reducing the risk of issuer default, as well as saving on the costs of a public offering and obtaining a credit rating. These results are driven by both issuer-specific, or “supply-side,” factors and external / investor-focused “demand-side” factors but supply-side variables such as firm size, profitability, and leverage are the most significant determinants of bond yield spreads. After factoring in the guarantee’s annual fee, the cost of a privately placed, bank-guaranteed bond is similar to the cost of a private loan backed by a bank loan guarantee. The bank guarantee therefore serves as valuable (but costly) protection for investors who invest in these riskier issuers’ bonds. However, after the U.S. financial crisis, bond issuers have begun to rely more on credit ratings as a potentially cheaper monitoring / corporate governance mechanism.