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Financial Contracting and the Choice between Private Placement and Publicly Offered Bonds

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The financial contracting in private placement bonds and publicly offered bonds are different. Our data show that private placement bonds are more likely to have restrictive covenants than public bonds. Private placement bonds are also more likely to be issued by smaller and riskier firms. For investment-grade firms that issue bonds in both markets, our analysis shows that firms select the bond type to minimize financing costs. We find significant differences in the pricing of private placement and publicly offered bonds, and some of these differences appear to be related to the different institutional features between the two markets.

Keywords: G10; G12; G22; debt choice; financial contracting; private debt; private placement bond

Document Type: Research Article


Affiliations: 1: Simon H. Kwan is a Vice President, Head of Financial Research, Economic Research Department at Federal Reserve Bank of San Francisco (  )., Email: 2: Willard T. Carleton is a Professor Emeritus of Finance at the College of Business and Public Administration, University of Arizona, Tucson (  )., Email:

Publication date: 2010-08-01

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