Journal article

Publication year: 2017

Pages: 263-268

Journal: Finance Research Letters

Volume number: 23

ISSN: 1544-6123

eISSN: 1544-6131

DOI Link: https://doi.org/10.1016/j.frl.2017.08.004

Publisher: Elsevier

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 behaviour among retail investors where a familiarity bias reduces the perceived risk of bond investments. (c) 2017 Elsevier Inc. All rights reserved.

Harvard Citation style: Herrmann, L. and Stolper, O. (2017) Investor familiarity and corporate debt financing conditions, Finance Research Letters, 23, pp. 263-268. https://doi.org/10.1016/j.frl.2017.08.004

APA Citation style: Herrmann, L., & Stolper, O. (2017). Investor familiarity and corporate debt financing conditions. Finance Research Letters. 23, 263-268. https://doi.org/10.1016/j.frl.2017.08.004