Call Timing of Callable Non-Convertible Bonds: A Survival Analysis

Authors

  • Jung Bum Wee Department of Management, Kyung Hee University, Seoul
  • Keunkwan Ryu Department of Economics, Seoul National University, Seoul, 1 Gwanak-ro, Gwanak-gu, Seoul 08826
  • Ki Beom Binh Department of Economics, Myongji University, Seoul

DOI:

https://doi.org/10.6000/1929-7092.2018.07.28

Keywords:

Call hazard rate, callable non-convertible bond, embedded call option, percentage life, duration.

Abstract

We empirically analyze the factors affecting corporate decisions to call non-convertible bonds using survival analysis. The results show that firms tend to defer calling non-convertible bonds in order to mitigate agency costs of debt (including under-investment and risk-shift); that calling is significantly more intense if positive information is revealed; that non-refundability clauses are binding on call decisions; that firms are more likely to redeem bonds to refund if market interest rates fall dramatically; and that this interest effect is stronger as the transaction costs of refunding decrease. Also, this paper shows that call intensity monotonically decreases after call protection periods expire.

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Published

2018-10-03

Issue

Section

Articles