Do banks strategically time public bond issuance because of the accompanying disclosure, due diligence, and investor scrutiny?
Abstract: This paper tests a new hypothesis that bank managers issue bonds, at least in part, to convey positive, private information and refrain from issuance to hide negative, private information. We find evidence for this hypothesis, using rating migrations, equity returns, bond issuance, and balance sheet data for US bank holding companies. The results add to our understanding of the role of "market discipline" in monitoring bank holding companies and also inform upon how proposed regulatory requirements that banking organizations frequently issue public bonds might augment "market discipline."
File(s): File format is text/html http://www.federalreserve.gov/pubs/feds/2003/200337/200337abs.html
File(s): File format is application/pdf http://www.federalreserve.gov/pubs/feds/2003/200337/200337pap.pdf
Part of Series: Finance and Economics Discussion Series
Publication Date: 2003