UCL Department of Economics


Finance Seminar - Lira Mota (NYU)

08 May 2024, 4:00 pm–5:15 pm

One UCL awards presentation

Financially Sophisticated Firms, joint with Kerry Siani

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Ji Hee Yoon

Abstract: Company capital structure extends far beyond the simple choice between debt and equity. In issuing publicly traded bonds, firms often employ complex entity structures, issuing diverse bond types with varying maturity, seniority, and covenants. In this paper, we document a significant heterogeneity in bond characteristics issued by firms that maps to heterogeneity in prices and investor composition. Using detailed portfolio allocation data, we find that firms, like financial intermediaries, engineer assets with cash flows that meet investors' demands. We show evidence that the complex bond issuance structure employed by firms serves a dual purpose: it helps complete the market while simultaneously reducing the costs of capital to the firm. Financially sophisticated firms create value for shareholders and are more resilient to credit market shocks.

Location: B03, Ricardo Lecture Theatre, Drayton House

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