Staff Reports
The Private Premium in Public Bonds
2014 March 2012 Number 553
Revised March 2014
JEL classification: G12, G14, G32

Authors: Anna Kovner and Chenyang Wei

This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 30 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 40-56 basis points when a propensity matching methodology is used or when we control for fixed issuer effects. In contrast, in the same sample, there is no difference in pricing in private debt (syndicated loans). Despite the premium pricing, bonds of private companies are no more likely to decline in price, to default, or to be downgraded than are public bonds. We conclude that the costs of information may be different across segments of the debt market.

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