Credit crunch and market timing of global bond issuance

This paper examines the determinants of global financing for a sample of 828 global debt issues made by U.S. firms during the periods from 1996 to 2009. We find that investors demand significant lower premiums on global bond issues than on domestic bond issues, and the volume of global bond relative to domestic bond issues increases as the interest differential widens between global and domestic markets, suggesting that the firms time the market in issuing global bonds to exploit cheaper financing opportunities. We also find that the U.S. risk premium is positively correlated with the interest cost differential, and firms tend to issue more global bonds when the risk premium is high. This finding provides a potential explanation for the increasing amount of global bond issues observed during the recent credit crunch, which is characterized by high risk premium.