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The Call, Sinking Fund, and Term-to-Maturity Features of Corporate Bonds: An Empirical Investigation

Karlyn Mitchell
The Journal of Financial and Quantitative Analysis
Vol. 26, No. 2 (Jun., 1991), pp. 201-222
DOI: 10.2307/2331265
Stable URL: http://www.jstor.org/stable/2331265
Page Count: 22
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The Call, Sinking Fund, and Term-to-Maturity Features of Corporate Bonds: An Empirical Investigation
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Abstract

Do bond-issuing firms attempt to choose the call, sinking fund, and term-to-maturity features of bonds to improve shareholder wealth? This paper develops and tests two hypotheses about the determinants of bond features using a conditional logistic model. The model is estimated on a sample of bonds issued between 1982 and 1986. Model estimates show that a bond's call, sinking fund, and term-to-maturity features are statistically related to the issuing firm's retention ratio, ratio of convertible to long-term debt, two-year change in net operating income, and whether the firm is listed on the NYSE and included in the S&P400. These findings support the view that firms financing high-quality projects, but facing information asymmetries, choose shorter-term (medium-term) callable bonds with and without the sinking fund feature.

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