The Private Premium in Public Bonds

This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 31 basis points higher for public bonds of private companies than for bonds of public companies, even after controlling for observable differences, including rating, financial performance, industry, bond characteristics and issuance timing. The estimated private premium increases to 40-50 basis points when a propensity matching methodology is used or when we control for fixed issuer effects. Despite the premium pricing, bonds of private companies are no more likely to default or be downgraded than are public bonds. They do not have worse secondary market performance or higher credit default swap spreads nor are they necessarily less liquid. Bond investors appear to discount the value of privately held equity. The effect does not come only from the lack of a public market signal of asset quality, because very small public companies also pay high spreads

The Impact of Shareholder Control on Bondholders

This paper investigates the effect of shareholder control on bondholder wealth. While stronger shareholder control can benefit bondholders by disciplining managers, it also increases the likelihood of events that can hurt bondholders, e.g. hostile takeovers. We hypothesize that shareholder control can have contrasting effects on bond yields depending on the takeover vulnerability of a firm. Using the presence of an institutional blockholder to proxy for shareholder control and firm-level anti-takeover provisions to proxy for takeover vulnerability, we find that shareholder control is associated with lower yields if the firm is protected from takeovers. We also find that shareholder control is associated with higher yields if the firm is exposed to takeovers. The contrasting effects of shareholder control on yields are the strongest for firms that are small and have low leverage. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 93 basis points. Further, the results are insignificant for a sub-sample of firms where the bondholders are protected from takeovers through the poison put covenant. Bond ratings also appear to incorporate a similar effect of shareholder control on bondholders Finally, we find that a bond pricing model that does not account for shareholder control generates an annualized abnormal return of 1% to 1.4% for portfolios that long firms with both strong shareholder control and high takeover vulnerability and short firms without either shareholder control or takeover vulnerability. Combined, these results suggest that the use of different governance mechanisms, such as shareholder monitoring and takeover vulnerability, depends on a firm’s capital structure and that bond-pricing models should account for shareholder control

The Impact of Shareholder Control on Bondholders

This paper investigates the effect of shareholder control on bondholder wealth. While stronger shareholder control can benefit bondholders by disciplining managers, it also increases the likelihood of events that can hurt bondholders, e.g. hostile takeovers. We hypothesize that shareholder control can have contrasting effects on bond yields depending on the takeover vulnerability of a firm. Using the presence of an institutional blockholder to proxy for shareholder control and firm-level anti-takeover provisions to proxy for takeover vulnerability, we find that shareholder control is associated with lower yields if the firm is protected from takeovers. We also find that shareholder control is associated with higher yields if the firm is exposed to takeovers. The contrasting effects of shareholder control on yields are the strongest for firms that are small and have low leverage. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 93 basis points. Further, the results are insignificant for a sub-sample of firms where the bondholders are protected from takeovers through the poison put covenant. Bond ratings also appear to incorporate a similar effect of shareholder control on bondholders Finally, we find that a bond pricing model that does not account for shareholder control generates an annualized abnormal return of 1% to 1.4% for portfolios that long firms with both strong shareholder control and high takeover vulnerability and short firms without either shareholder control or takeover vulnerability. Combined, these results suggest that the use of different governance mechanisms, such as shareholder monitoring and takeover vulnerability, depends on a firm’s capital structure and that bond-pricing models should account for shareholder control

CDS and Equity Market Reactions to Stock Issuances in the U.S. Financial Industry: Evidence from the 2002-13 Period

We study market reactions to seasoned equity issuances that were announced by financial companies between 2002 and 2013. To assess the risk and valuation implications of these seasoned equity issuances, we conduct an event analysis using daily credit default swap (CDS) and stock market pricing data. The major findings of the paper are that CDS prices respond quickly to new, default-relevant information. Over the full sample period, cumulative abnormal CDS spreads drop in response to equity issuance announcements. The reactions are significantly stronger during the financial crisis. At that time, the federal government injected equity into financial institutions to ensure their viability. The market reacted to the equity issue announcements by assessing significantly lower costs for default protection via credit default swaps. The evidence indicates that single-name CDS based on financial firms' default probabilities are potentially useful for private investors and regulators

JUNO Sensitivity to Invisible Decay Modes of Neutrons

International audienceWe explore the bound neutrons decay into invisible particles (e.g., $n\rightarrow 3 \nu$ or $nn \rightarrow 2 \nu$) in the JUNO liquid scintillator detector. The invisible decay includes two decay modes: $n \rightarrow { inv}$ and $nn \rightarrow { inv}$. The invisible decays of $s$-shell neutrons in $^{12}{\rm C}$ will leave a highly excited residual nucleus. Subsequently, some de-excitation modes of the excited residual nuclei can produce a time- and space-correlated triple coincidence signal in the JUNO detector. Based on a full Monte Carlo simulation informed with the latest available data, we estimate all backgrounds, including inverse beta decay events of the reactor antineutrino $\bar{\nu}_e$, natural radioactivity, cosmogenic isotopes and neutral current interactions of atmospheric neutrinos. Pulse shape discrimination and multivariate analysis techniques are employed to further suppress backgrounds. With two years of exposure, JUNO is expected to give an order of magnitude improvement compared to the current best limits. After 10 years of data taking, the JUNO expected sensitivities at a 90% confidence level are $\tau/B( n \rightarrow { inv} ) > 5.0 \times 10^{31} \, {\rm yr}$ and $\tau/B( nn \rightarrow { inv} ) > 1.4 \times 10^{32} \, {\rm yr}$

Prediction of Energy Resolution in the JUNO Experiment

International audienceThis paper presents the energy resolution study in the JUNO experiment, incorporating the latest knowledge acquired during the detector construction phase. The determination of neutrino mass ordering in JUNO requires an exceptional energy resolution better than 3% at 1 MeV. To achieve this ambitious goal, significant efforts have been undertaken in the design and production of the key components of the JUNO detector. Various factors affecting the detection of inverse beta decay signals have an impact on the energy resolution, extending beyond the statistical fluctuations of the detected number of photons, such as the properties of liquid scintillator, performance of photomultiplier tubes, and the energy reconstruction algorithm. To account for these effects, a full JUNO simulation and reconstruction approach is employed. This enables the modeling of all relevant effects and the evaluation of associated inputs to accurately estimate the energy resolution. The study reveals an energy resolution of 2.95% at 1 MeV. Furthermore, the study assesses the contribution of major effects to the overall energy resolution budget. This analysis serves as a reference for interpreting future measurements of energy resolution during JUNO data taking. Moreover, it provides a guideline in comprehending the energy resolution characteristics of liquid scintillator-based detectors

Prediction of Energy Resolution in the JUNO Experiment

International audienceThis paper presents the energy resolution study in the JUNO experiment, incorporating the latest knowledge acquired during the detector construction phase. The determination of neutrino mass ordering in JUNO requires an exceptional energy resolution better than 3% at 1 MeV. To achieve this ambitious goal, significant efforts have been undertaken in the design and production of the key components of the JUNO detector. Various factors affecting the detection of inverse beta decay signals have an impact on the energy resolution, extending beyond the statistical fluctuations of the detected number of photons, such as the properties of liquid scintillator, performance of photomultiplier tubes, and the energy reconstruction algorithm. To account for these effects, a full JUNO simulation and reconstruction approach is employed. This enables the modeling of all relevant effects and the evaluation of associated inputs to accurately estimate the energy resolution. The study reveals an energy resolution of 2.95% at 1 MeV. Furthermore, the study assesses the contribution of major effects to the overall energy resolution budget. This analysis serves as a reference for interpreting future measurements of energy resolution during JUNO data taking. Moreover, it provides a guideline in comprehending the energy resolution characteristics of liquid scintillator-based detectors