This study examines the relationship between corporate asset growth rates and bond performance, uncovering a strong inverse relationship between the two. Higher asset growth increases asset value, potentially offering greater protection to bondholders and leading to lower bond returns. By decomposing bond returns into initial yields and subsequent yield changes, our analysis supports this expectation and suggests that investors may overreact to asset growth, as investor sentiment significantly influences bond yields in response to it. Finally, drawing on insights from leverage-based Q-theory, we examine how stock returns respond to asset growth, accounting for its effect on bond performance.

Corporations often use affiliated firms as guarantors when issuing guaranteed bonds, thus combining external financing with internal credit enhancements. In this study, we empirically examine the potential determinants of corporate guaranteed debt issuance. We find evidence that issuers with fewer tangible assets, lower credit ratings, more pronounced debt overhang and/or greater managerial agency problems are more likely to issue guaranteed bonds. Moreover, we find that while firms generally issue guaranteed bonds with different motives, alternative incentives for guaranteed bond uses are largely captured by bond prices at issuance.