Interest rate risk management with debt issues: Evidence from Europe

In comparison to bank financing, public debt market may allow firms to more readily match maturity and risk structures between their assets and liabilities. We test whether new issuers on the European corporate bond markets experience a change in their interest rate sensitivity upon their bond issua...

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Bibliographic Details
Published in:Journal of financial stability 2018-06, Vol.36, p.1-11
Main Authors: Délèze, Frédéric, Korkeamäki, Timo
Format: Article
Language:English
Subjects:
Euro
Interest rate risk
Risk management
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Summary:In comparison to bank financing, public debt market may allow firms to more readily match maturity and risk structures between their assets and liabilities. We test whether new issuers on the European corporate bond markets experience a change in their interest rate sensitivity upon their bond issuance. We find that stock returns have become significantly less sensitive to interest rate fluctuations for firms that enter the publicly traded bond market. Our findings support the notion that firms manage their interest rate risk with new debt issues.
ISSN:1572-3089
1878-0962
DOI:10.1016/j.jfs.2018.01.003