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Michela Altieri

25 November 2013 @ 12:45 - 13:45

 

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Date:
25 November 2013
Time:
12:45 - 13:45
Event Category:
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“Group Affiliation, Implicit Guarantees and the Cost of Borrowing”

abstract

This paper investigates the effect of group affiliation on credit spreads of firm’s public debt. We analyse all the firms issuing public
debt on the US Primary and Secondary market from 1980 until 2006, by comparing business groups and independent firms new issuances. The
results show that controlled firms (i.e. subsidiaries) have both higher leverage and lower credit spreads than similar non-affiliate
firms, even after controlling for a possible bias driven by the affiliation status. However, the cost of the debt on the new issues of
parent firms does not significantly differ from similar stand-alone bond issues. Moreover, the new subsidiary issue does not negatively
affect the cost of the outstanding debt of the parent firm. These findings are consistent with the presence of a one-way implicit
guarantee inside US business groups from the parent to the subsidiary firm.