دانلود Investor familiarity and corporate debt financing conditions

Abstract

This study contributes to our understanding of how retail bondholders value familiarity with the issuer. Using a sample of corporate bonds issued by German non-financials and especially marketed to individual investors, we document that– besides product market visibility–three previously unconsidered antecedents of investor familiarity, i.e. local visibility, media visibility and overall recognition of the bond-issuing company, are negatively associated with credit spreads. Given that company visibility does not necessarily result in a reduction of fundamental risk for the group of bondholders, the finding that higher familiarity relates to lower risk premia suggests heuristic decision behavior among retail investors where a familiarity bias reduces the perceived risk of bond investments.