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SUMMARY:The Corporate Supply of (Quasi) Safe Assets - Lira Mota (Princeton
 )
DTSTART:20220519T120000Z
DTEND:20220519T130000Z
UID:TALK161950@talks.cam.ac.uk
CONTACT:CERF/CF Admin
DESCRIPTION:Investors value safety services in financial assets\, such as 
 the ability to serve as a store of value\, to serve as collateral\, or to 
 meet mandatory capital and liquidity requirements. I present a model in wh
 ich investors value safety services not only in traditional safe assets su
 ch as US Treasuries\, but also in corporate debt. Shareholders thus maximi
 ze the value of the firm by complementing standard business operations wit
 h safe asset creation. Based on this theoretical framework\, I use the CDS
 -bond basis to derive a measurement of the safety premium of corporate bon
 ds. I document substantial cross sectional variation in the safety premium
  of corporate bonds\, which allows me to test the model's predictions. I s
 how that a high safety premium leads to a marked increase in debt issuance
  by relatively safer firms. These debt proceeds have a small impact on rea
 l investment and are largely used instead for equity payouts. This mechani
 sm can explain why\, in the aftermath of the financial crisis\, non-financ
 ial investment grade companies significantly increased their debt issuance
  and equity payout while investment remained weak.
LOCATION:Online
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