Large international corporate bonds: Investor behavior and firm responses

Emerging market corporations have significantly increased their borrowing in international debt markets since 2008. We provide a detailed dive into this borrowing by showing that it happened in one particular market segment. Firms significantly increased their large bond issuances, mostly above US$500 million, which became cheaper to issue. We find a strong clustering of issuances with a face value of exactly $500 million after 2008 compared to developed markets. This suggests increased willingness from investors, especially cross-over investors, to purchase emerging market bonds included in newly created bond indexes, which require a minimum face value of $500 million. However, not all firms could issue such large bonds. Firms large enough to do so faced a trade-off. Issuing index-eligible bonds allowed them to borrow at a lower cost at the expense of accumulating cash. Because of this “size yield discount,” many companies increased their issuances of index-eligible bonds, accumulating cash holdings.