Parent guarantees to subsidiary bond issues can circumvent restrictive covenants on parent debt, and transfer wealth from bond- to equity-holders or maximize parent managers' private benefits. We find that parent firms expecting stringent covenants on their own debt more likely guarantee...

This paper investigates the cost of debt of parent and subsidiary firms on the US corporate bond market. Debt issued by subsidiary firms is economically relevant, as it represents 13% of the total US bond debt. I find that the bonds issued by non-financial subsidiary firms are related, both...