Keywords: Bond issuance, disclosure, due diligence, financial institutions
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."
Full paper (407 KB PDF)
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Last update: August 12, 2003