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The topic of make-whole call provisions on bond issues remains a relatively unexplored area in modern finance literature, with the exception of Mann and Powers [Mann, S.V. and Powers, E.A., 2003, Indexing a Bond's Call Price: An Analysis of Make-whole Call Provisions, Journal of Corporate Finance 9(5), 535–554.]. This paper examines the corporate finance implications of including such a call feature in bond issuances, and how such issuances are different from bond issuances which are not callable, or which employ regular call features. We find that bond issuances employing make-whole call provisions (1) are accompanied by a significantly positive stock price reaction, (2) exhibit superior post-issuance stock returns, and (3) are associated with positive analyst revisions in the long-term growth rate of earnings. These results suggest that bond issuances which include make-whole call provisions are indeed very different from the other issuances, and are clearly not a case of “much ado about nothing”.

Numerous studies have analyzed how a bank's intermediation margin varies with respect to such factors as credit quality, funding risk, bank capital, deposit insurance and other factors. However, these studies ignore the potential that loans tend to prepay if interest rates decline and deposits tend to be withdrawn if interest rates rise. Taking this very fundamental fact into account, we derive optimal loan rates and deposit rates when the bank is subject to loan prepayments and deposit withdrawals. Among other things, we find that greater volatility of interest rates tends to increase the margin. The strength of the correlation between the level of interest rates and the propensity to prepay loans (withdraw deposits) also plays an interesting role.

This research provides improved techniques for analyzing the after-tax risk exposure of taxable institutions holding amortizing instruments such as commercial, real estate, and consumer loans. We derive after-tax duration for amortizing instruments and analyze it for sensitivity to tax rates, coupon, and maturity. Taxable investors who hedge and ignore the effects of taxes on amortizing instruments will underestimate differences in durations on bonds versus amortizing instruments of equal maturities; bond durations increase much faster as tax rates increase. One unexpected result shows that, unlike bond duration, amortizing instrument duration often increases with coupon rate, and sometimes is independent of coupon rate.

Part 1 Principles: lending, payments and risk-taking the financial system and its technology efficiency, stability and government intervention. Part 2 Interest rates and exchange rates: interest rates, exchange rates and security prices the level of interest rates and exchange rates money, prices, interest rates and exchange rates the structure of interest rates and exchange rates. Part 3 Intermediaries: understanding financial intermediaries commercial banks the banking industry - part 1 the banking industry - part 2 near banks - thrifts, finance companies and others payments and foreign exchanges insurance pension funds and mutual funds. Part 4 Markets: understanding security markets the market for government securities the money market the capital market the mortgage market and securitization the derivatives market - futures, options and swaps. Part 5 Stability and the central bank: managing liquidity and risk the stability of the financial system deposit insurance controlling the quantity of money monetary policy.

The behavior of different components of municipal bond yields may have a significant impact upon bond price behavior. Specifically, demand premiums created by banks may stabilize bond yields in some maturity ranges but not in others; for example, short‐term municipals may be stabilized but not long‐term. This research implies that bank demand behavior may create demand premiums that stabilize prices of short‐term municipal bonds relative to those of Treasury bonds of like maturity. While this implication is inconsistent with the residual theory of bank demand, it is consistent with the tax‐shield theory attributed to Hendershott and Koch [3, 4].

This research investigates the impact of interest rate volatility upon corporate bond yield spreads. We first consider the impact of interest rate volatility upon noncallable bond spreads. Because greater interest rate volatility likely increases the volatility of the firm's debt, we hypothesize that the relation will be positive. Given that we do find a positive relation, we thus investigate whether the positive effect of interest rate volatility on yield spreads is stronger or weaker for callable bonds. We find that the effect is weaker for callable bonds. This result indicates that there is a negative relation between default spreads and call spreads, which is consistent with the theory of Acharya and Carpenter (2002), but in contrast to the theory of King (2002). Furthermore, our results for the relationship between equity volatility and yield spread tend to support Acharya and Carpenter (2002) more than King (2002).