THE CALL, SINKING FUND, AND TERM-TO-MATURITY FEATURES OF CORPORATE-BONDS - AN EMPIRICAL-INVESTIGATION

Do bond-issuing firms attempt to choose the call, sinking fund, and term-to-maturity features of bonds to improve shareholder wealth? This paper develops and tests two hypotheses about the determinants of bond features using a conditional logistic model. The model is estimated on a sample of bonds issued between 1982 and 1986. Model estimates show that a bond's call, sinking fund, and term-to-maturity features are statistically related to the issuing firm's retention ratio, ratio of convertible to long-term debt, two-year change in net operating income, and whether the firm is listed on the NYSE and included in the S&P400. These findings support the view that firms financing high-quality projects, but facing information asymmetries, choose shorter-term (medium-term) callable bonds with and without the sinking fund feature. © 1991, School of Business Administration, University of Washington. All rights reserved.