Liquidity and Corporate Debt Market Timing

This paper investigates whether firm managers time debt issuances according to market liquidity conditions. Using transactions data in the U.S. market from July 2002 to December 2009, our results show that both the moment and volume of debt issuance are significantly associated with periods of high aggregate liquidity in the corporate bond market. The result is especially strong when liquidity is aggregated across bonds in the same risk class. Splitting the sample into timers and nontimers, we find that liquidity timers benefit from issuing in moments of debt overpricing obtaining financing at much lower cost