TY - JOUR
T1 - A comparative analysis of ex ante credit spreads
T2 - structured finance versus straight debt finance
AU - Marques, Manuel O.
AU - Pinto, João M.
N1 - Funding Information:
The authors thank Paulo Alves, Jeff Black, Rob Bliss, Gary Emery, Benjamin Esty, Miguel Ferreira, Stefano Gatti, Ronny Hofmann, Stefanie Kleimeier, Nadia Linciano, William Megginson, Álvaro Nascimento, Ricardo Ribeiro, Gordon Roberts, Richard Saito, Frank San Pietro, João Santos, Mário Santos, Anthony Saunders, Pedro Silva, Laura Starks, Shage Zhang, and two anonymous referees for their helpful suggestions. We would also like to thank participants in the FMA 2011 Annual European Doctoral Student Consortium in Porto, the 2014 Global Finance Conference in Dubai, the 2014 INFINITI Conference in Prato, the FMA 2014 Annual European Conference in Maastricht, the 2014 Portuguese Finance Network International Conference in Vilamoura, the FMA 2014 Annual Conference in Nashville, the 7 th Accounting and Finance Conference of the Catholic University of Portugal-Porto, the 2015 International Conference of the Financial Engineering and Banking Society in Nantes, and the 2018 International Finance and Banking Society Conference in Porto for helpful comments on earlier drafts. Financial support from Fundação para a Ciência e Tecnologia (through project UID/GES/00731/2019 ) is greatefully acknowledged.
Funding Information:
The authors thank Paulo Alves, Jeff Black, Rob Bliss, Gary Emery, Benjamin Esty, Miguel Ferreira, Stefano Gatti, Ronny Hofmann, Stefanie Kleimeier, Nadia Linciano, William Megginson, ?lvaro Nascimento, Ricardo Ribeiro, Gordon Roberts, Richard Saito, Frank San Pietro, Jo?o Santos, M?rio Santos, Anthony Saunders, Pedro Silva, Laura Starks, Shage Zhang, and two anonymous referees for their helpful suggestions. We would also like to thank participants in the FMA 2011 Annual European Doctoral Student Consortium in Porto, the 2014 Global Finance Conference in Dubai, the 2014 INFINITI Conference in Prato, the FMA 2014 Annual European Conference in Maastricht, the 2014 Portuguese Finance Network International Conference in Vilamoura, the FMA 2014 Annual Conference in Nashville, the 7th Accounting and Finance Conference of the Catholic University of Portugal-Porto, the 2015 International Conference of the Financial Engineering and Banking Society in Nantes, and the 2018 International Finance and Banking Society Conference in Porto for helpful comments on earlier drafts. Financial support from Funda??o para a Ci?ncia e Tecnologia (through project UID/GES/00731/2019) is greatefully acknowledged.
Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2020/6
Y1 - 2020/6
N2 - This paper examines the pricing of structured finance (SF) – asset-backed securities (ABS), mortgage-backed securities (MBS), and collateralized debt obligations (CDO) – and straight debt finance transactions. Using a cross-section of 24,525 European bonds issued by financial and nonfinancial firms in the 2000–2016 period, we show that although ratings are the most important pricing determinant for SF and corporate bonds (CB) at issuance, investors rely on other contractual, macroeconomic, and firms’ characteristics beyond these ratings. We find that CDO tranches have, on average, higher credit spreads than similarly rated CB, while investors are not compensated for facing higher systematic risk components in relation to investment-grade ABS and MBS. Our results also support the hypothesis of SF transactions as mechanisms of reducing funding costs: SF transactions’ weighted average spread is lower than that of comparable CB and originating firms’ creditworthiness does not deteriorate when compared to a sample of matched firms.
AB - This paper examines the pricing of structured finance (SF) – asset-backed securities (ABS), mortgage-backed securities (MBS), and collateralized debt obligations (CDO) – and straight debt finance transactions. Using a cross-section of 24,525 European bonds issued by financial and nonfinancial firms in the 2000–2016 period, we show that although ratings are the most important pricing determinant for SF and corporate bonds (CB) at issuance, investors rely on other contractual, macroeconomic, and firms’ characteristics beyond these ratings. We find that CDO tranches have, on average, higher credit spreads than similarly rated CB, while investors are not compensated for facing higher systematic risk components in relation to investment-grade ABS and MBS. Our results also support the hypothesis of SF transactions as mechanisms of reducing funding costs: SF transactions’ weighted average spread is lower than that of comparable CB and originating firms’ creditworthiness does not deteriorate when compared to a sample of matched firms.
KW - Corporate bonds
KW - Cost of funding
KW - Debt pricing
KW - Mispricing
KW - Structured finance
UR - http://www.scopus.com/inward/record.url?scp=85078831632&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2020.101580
DO - 10.1016/j.jcorpfin.2020.101580
M3 - Article
AN - SCOPUS:85078831632
SN - 0929-1199
VL - 62
SP - 1
EP - 36
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101580
ER -