The Optimality of Call Provision Terms

There is substantial variation in fixed-price call provision terms—call price premium and call protection. I investigate determinants of call price, call protection, and estimated call option value. Consistent with agency theory and asymmetric information models, I find that lower credit quality and opaque issuers choose higher call premiums, longer call protection, and overall less valuable call options. Higher-quality issuers, particularly financial institutions that struggle when interest rates are low, do the opposite. This paper was accepted by David Simchi-Levi, finance.

• 저널Management Science · 67(10) · 6581–6601
• 토픽Corporate Finance and Governance · Accounting
• DOI10.1287/mnsc.2020.3774
• 저자Eric A. Powers