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The Choice Between Callable And Noncallable Bonds

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  • Laurence Booth
  • Dimitrios Gounopoulos
  • Frank Skinner

Abstract

type="main" xml:lang="en"> We examine the choice and the offer spreads between callable and noncallable bonds. We find significant differences by industry sector and therefore segment our results by financial and nonfinancial industries. For the financial sector, the popularity of callable and noncallable bonds is significantly related to the economic environment. Financial and high-grade nonfinancial callable bonds are also more likely to be issued via a shelf prospectus. Although firms that issue callable bonds do not consistently display the characteristics associated with severe agency problems, the issue choice for below-investment-grade nonfinancial and lower rated financial bonds, where we can expect agency problems to be more severe, is more consistent with agency theory than is the issue choice for higher rated bonds.

Suggested Citation

  • Laurence Booth & Dimitrios Gounopoulos & Frank Skinner, 2014. "The Choice Between Callable And Noncallable Bonds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(4), pages 435-460, December.
    • Handle: RePEc:bla:jfnres:v:37:y:2014:i:4:p:435-460
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    Cited by:

    1. Brown, Scott & Powers, Eric, 2020. "The life cycle of make-whole call provisions," Journal of Corporate Finance, Elsevier, vol. 65(C).
    2. Wei Hao & Andrew Prevost & Udomsak Wongchoti, 2018. "Are Low Equity R2 Firms More or Less Transparent? Evidence from the Corporate Bond Market," Financial Management, Financial Management Association International, vol. 47(4), pages 865-909, December.
    3. Kim, Jong-Min & Kim, Dong H. & Jung, Hojin, 2020. "Modeling non-normal corporate bond yield spreads by copula," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    4. Alderson, Michael J. & Lin, Fang & Stock, Duane R., 2017. "Does the choice between fixed price and make whole call provisions reflect differential agency costs?," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 442-460.

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