We empirically study the corporate propensity to save from bonds versus loans. Our findings indicate that firms save approximately 14 cents of every dollar borrowed through bonds, while they do not exhibit similar savings behavior with loans. Saving from bonds is pervasive over time, and in the cross-section pledgeability is a key driver of this behavior. Specifically, we find that lower asset tangibility and shorter asset maturities are linked to substantial increases in saving rates from bond borrowings. We show that our results align with a model that incorporates external financing frictions and costly default.

In a market with informationally connected traders, the dynamics of volume, price informativeness, price volatility, and liquidity are severely affected by the information linkages every trader experiences with his peers. We show that in the presence of information linkages among traders, volume and price informativeness increase. Moreover, we find that information linkages improve or damage market depth, and lower or boost the Traders' profits, according to whether these linkages convey positively or negatively correlated signals. Finally, our model predicts patterns of trade correlation consistent with those identified in the empirical literature: trades generated by “neighbor” traders are positively correlated and trades generated by “distant” traders are negatively correlated.

We analyze the price effect of the introduction of collective action clauses (CACs) in newly issued sovereign bonds of eurozone countries as of January 1, 2013. By allowing a majority of creditors to modify payment obligations, such clauses reduce the likelihood of holdouts, while facilitating strategic default by the sovereign. We find that CAC bonds trade in the secondary market at lower yields than otherwise similar no-CAC bonds. The yield differential widens in countries with worse ratings and in those with stronger legal systems, especially if of midrange quality. Hence, CACs are seen as pro- rather than anticreditor provisions.

We show that the structure and pricing of debt in LBOs mostly depend on a single characteristic of the target firm, pre-LBO profitability. We find a positive relationship between pre-LBO profitability and deal leverage that is consistent with a dynamic trade-off theory of capital structure in the presence of adjustment costs. We argue that the wide range of debt tranches used in LBO financing can be folded into two main categories, senior and junior debt, where the pricing of senior and junior debt depends on their relative use and on bankruptcy risk. Our evidence also suggests that senior lenders oversupply cheap credit during hot buyout markets.