The Spillover Effects of Hurricane Katrina on Corporate Bonds and the Choice between Bank and Bond Financing

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Original languageEnglish
Journal / PublicationJournal of Financial and Quantitative Analysis
Online published22 Jun 2020
Publication statusOnline published - 22 Jun 2020

Abstract

We use an exogenous event-the spillover effects of Hurricane Katrina on corporate bonds through the liquidation of bond holdings by insurance companies-to study how companies react to temporary changes in the relative availability of bond and bank financing. We find that the negative shock on bonds induces firms to shift from bond financing to bank-based borrowing and to shorten the debt maturity. This shift in debt policy does not revert in the long term. There is no significant change in capital structure, suggesting that the substitution from bonds to bank loans is sufficient for the amount of borrowing.