Erhvervsobligationer i et dansk perspektiv: En empirisk analyse af betydende faktorer for låneomkostningerne

Christian Bækdal Johannsen & Mads Lyder Iversen

Student thesis: Master thesis

Abstract

Since the onset of the financial crisis in fall 2008 it has become more difficult and expensive for Danish companies to obtain bank loans. This is a situation often referred to as a credit crunch and it is primarily caused by regulatory requirements (Basel III) in the banking sector. The current credit crunch in Denmark has prevented Danish companies from investing in projects, which potentially would have been profitable with lower (normal) lending rates. Critics now say the credit crunch slows the economic recovery from the financial crisis. Basically the situation leaves Danish companies with two choices. Either they accept the increased cost of borrowing or they start looking for alternative sources funding. Corporate bonds can replace bank loan as source of medium – and long-term funding. Danish companies, like European companies in general, have a traditionally been using bank loans for this type of funding, whereas U.S companies rely much more on the bond market in order to obtain adequate financing. In this master thesis we have analysed determinants of the cost of borrowing related to corporate bonds from an issuer perspective. We have determined the relevant cost of borrowing, in regards to corporate bonds, is the yield spread which mainly consists of credit – and liquidity risk. By selecting corporate bonds from 99 listed US area non-financial firms during the period 2007-2012 we made a multiple linear regression model consisting of 18735 observations. By including credit rating, macroeconomic-, firm-specific equity- and accounting variables we set up a model able to explain 72 % of the yield spread level. We find that determinants such as firm-specific equity volatility and credit rating explain most of the yield spread. E.g. the difference of being rated as BBB (investment grade) or BB (speculative grade) results in premium equal to 180 bp compared to an average yield spread of 273 bp. The determinants from the empirical analysis, described above, can be applied as general determinants of the yield spread on corporate bonds. However, in this thesis we focus on Danish issuers of corporate bonds. In Denmark, the investor base is relatively small which adds illiquidity to the cost of borrowing. By interviewing major players in the Danish corporate bond market we find determinants which have impact on the liquidity of corporate bonds. These determinants are issue size, investment policy for institutional investors, issue market, brand recognition and whether or not the issuer has a credit rating. We find that the determinants with the greatest impact on potential Danish corporate bond‟s expected yield spreads, such firm-specific equity volatility and investment policy for institutional investors, can only to some extend be influenced by Danish issuers. Therefore, it only makes corporate bonds an attractive source of funding for the largest Danish corporations.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2012
Number of pages154