The Journal of Finance

The Determinants of Long‐Term Corporate Debt Issuances

Published: 03/05/2015   |   DOI: 10.1111/jofi.12264

DOMINIQUE C. BADOER, CHRISTOPHER M. JAMES

A significant proportion of the debt issued by investment‐grade firms has maturities greater than 20 years. In this paper we provide evidence that gap‐filling behavior is an important determinant of these very long‐term issues. Using data on individual corporate debt issues between 1987 and 2009, we find that gap‐filling behavior is more prominent in the very long end of the maturity spectrum where the required risk capital makes arbitrage costly. In addition, changes in the supply of long‐term government bonds affect not just the choice of maturity but also the overall level of corporate borrowing.

The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions

Published: 09/01/1984   |   DOI: 10.1111/j.1540-6261.1984.tb03898.x

MARK J. FLANNERY, CHRISTOPHER M. JAMES

This paper examines the relation between the interest rate sensitivity of common stock returns and the maturity composition of the firm's nominal contracts. Using a sample of actively traded commerical banks and stock savings and loan associations, common stock returns are found to be correlated with interest rate changes. The co‐movement of stock returns and interest rate changes is positively related to the size of the maturity difference between the firm's nominal assets and liabilities.

Do Banks Provide Financial Slack?

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00464

Charles J. Hadlock, Christopher M. James

We study the decision to choose bank debt rather than public securities in a firm's marginal financing choice. Using a sample of 500 firms over the 1980 to 1993 time period, we find that firms are relatively more likely to choose bank loans when variables that measure asymmetric information problems are elevated. The sensitivity of the likelihood of choosing bank debt to information problems is greater for firms with no public debt outstanding. These results are consistent with the hypothesis that banks help alleviate asymmetric information problems and that firms weigh these information benefits against a wide range of contracting costs when choosing bank financing.

An Analysis of the Impact of Deposit Rate Ceilings on the Market Values of Thrift Institutions

Published: 12/01/1982   |   DOI: 10.1111/j.1540-6261.1982.tb03617.x

LARRY Y. DANN, CHRISTOPHER M. JAMES

This paper examines the impact of changes in deposit interest rate regulations on the common stock values of savings and loan institutions. The analysis indicates that stockholder‐owned savings and loans (S & L's) have experienced statistically significant declines in equity market values at the announcement of the removal of ceilings on certain consumer (small saver) certificate accounts and the introduction of short term variable rate money market certificates. We find the evidence to be consistent with the hypothesis that S & L's have earned economic rents from restrictions on interest rates paid to small saver accounts, and that relaxation of interest rate ceilings has reduced these rents.

Ratings Quality and Borrowing Choice

Published: 05/31/2019   |   DOI: 10.1111/jofi.12820

DOMINIQUE C. BADOER, CEM DEMIROGLU, CHRISTOPHER M. JAMES

Past studies document that incentive conflicts may lead issuer‐paid credit rating agencies to provide optimistically biased ratings. In this paper, we present evidence that investors question the quality of issuer‐paid ratings and raise corporate bond yields where the issuer‐paid rating is more positive than benchmark investor‐paid ratings. We also find that some firms with favorable issuer‐paid ratings substitute public bonds with borrowings from informed intermediaries to mitigate the “lemons discount” associated with poor quality ratings. Overall, our results suggest that the quality of issuer‐paid ratings has significant effects on borrowing costs and the choice of debt.