Do You want to Bond? Pricing and Use of Corporate Bonds: Lessons from the Past.

The most important financing sources for a firm are equity and debt. Equity consists of stocks that pay a variable dividend, while debt consists of loans that pay a predetermined interest. Many loans are bonds sold by the firm to outside investors and traded on a financial market. Despite the economic importance of corporate bonds, we still know little about (a) what determines the return of bonds for investors, and (b) when and why firms use bonds as a source of financing. In my dissertation, I will use a unique, newly constructed dataset of Belgian corporate bonds that spans the period 1873-1940 to investigate corporate bond returns and corporate bond financing. There is currently only limited evidence on the determinants of corporate bond returns, and all of this evidence is mostly based on one recent dataset, for the U.S. This raises the question whether the results found for this dataset hold in other environments. The highly-developed Belgian bond market in the period considered and the high quality of data enables me to test this in a unique way. By studying a period in which financial markets were almost completely unregulated by the state, I can also investigate how firms convince investors to buy bonds when there are no specific laws to protect them and how firms used debt contracts to protect investors and how this affected bond pricing. Additionally, I investigate how the voluntary disclosure of information to investors influenced bond pricing and riskiness.

Keywords:FINANCIAL HISTORY, ECONOMIC HISTORY, FINANCIAL ECONOMICS

Disciplines:Business economics, Financial economics, Economic history