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The Spillover Effects of Hurricane Katrina on Corporate Bonds and the Choice Between Bank and Bond Financing

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  • Massa, Massimo
  • Zhang, Lei

Abstract

We use an exogenous event, namely, the spillover effects of Hurricane Katrina on corporate bonds through the liquidation of bond holdings by insurance companies, to study how companies react to temporary changes in the relative availability of bond and bank financing. We find that the negative shock on bonds induces firms to shift from bond financing to bank-based borrowing and to shorten the debt maturity. This shift in debt policy does not revert in the long term. There is no significant change in capital structure, suggesting that the substitution from bonds to bank loans is sufficient for the amount of borrowing.

Suggested Citation

  • Massa, Massimo & Zhang, Lei, 2021. "The Spillover Effects of Hurricane Katrina on Corporate Bonds and the Choice Between Bank and Bond Financing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(3), pages 885-913, May.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:3:p:885-913_5
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    Cited by:

    1. Kubitza, Christian, 2021. "Investor-driven corporate finance: Evidence from insurance markets," ICIR Working Paper Series 43/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    2. Kubitza, Christian & Grochola, Nicolaus & Gründl, Helmut, 2021. "Life insurance convexity," ICIR Working Paper Series 42/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    3. Sitong Yang & Shouwei Li & Xue Rui & Tianxiang Zhao, 2024. "The impact of climate risk on the asset side and liability side of the insurance industry: evidence from China," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-51, June.
    4. Chi-Ming Ho, 2023. "Research on interaction of innovation spillovers in the AI, Fin-Tech, and IoT industries: considering structural changes accelerated by COVID-19," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-29, December.
    5. Liang, Chen & Zhu, Minghao & Lee, Peter K.C. & Cheng, T.C.E. & Yeung, Andy C.L., 2024. "Combating extreme weather through operations management: Evidence from a natural experiment in China," International Journal of Production Economics, Elsevier, vol. 267(C).
    6. Wajih Abbassi & Sabri Boubaker & Wael Louhichi, 2024. "Why do corporate social responsibility‐oriented companies opt for bond debt? Evidence from crisis periods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1534-1568, April.
    7. Zhao, Rui & Zhang, Dayong & Guo, Mengmeng, 2024. "Do natural disasters affect stock price crash risk? Evidence from emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 93(C).
    8. Ai, Li & Gao, Lucia S., 2023. "Firm-level risk of climate change: Evidence from climate disasters," Global Finance Journal, Elsevier, vol. 55(C).
    9. Natee Amornsiripanitch & Zeqiong Huang & David Kwon & Jinjie Lin, 2022. "Net Income Measurement, Investor Inattention, and Firm Decisions," Working Papers 22-05, Federal Reserve Bank of Philadelphia.
    10. Liu, Zhonglu & He, Shuguang & Men, Wenjiao & Sun, Haibo, 2024. "Impact of climate risk on financial stability: Cross-country evidence," International Review of Financial Analysis, Elsevier, vol. 92(C).
    11. Christofer Adrian & Mukesh Garg & Anh Viet Pham & Soon-Yeow Phang & Cameron Truong, 2023. "Do Natural Disasters Affect Corporate Tax Avoidance? The Case of Drought," Journal of Business Ethics, Springer, vol. 186(1), pages 105-135, August.
    12. Robert Engle & Shan Ge & Hyeyoon Jung & Xuran Zeng, 2023. "Physical Climate Risk Factors and an Application to Measuring Insurers’ Climate Risk Exposure," Staff Reports 1066, Federal Reserve Bank of New York.

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