Who Benefits from Bond Market Modernization?

66 Pages Posted: 11 Jan 2016 Last revised: 16 Sep 2018

See all articles by Jillian Grennan

Jillian Grennan

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

David K. Musto

University of Pennsylvania - Finance Department

Date Written: August 30, 2018


Speed is a critical feature of modern capital markets. To identify the effects of speed in U.S. corporate bond markets, we use eligibility cutoffs that allow ``well-known seasoned issuers'' (WKSI) to accelerate issuances and reduce review time. After determining that this change initiated widespread adoption of covenants, we then examine the pricing, trading, and holding of these bonds and conclude that speed benefits investors and issuers instead of intermediaries. This finding stems from the inclusion of covenants, which can serve as substitutes for time-consuming due diligence. The speed-induced standardization of covenants also lowers underwriters' liability risk and attracts new investors.

Keywords: Raising Capital, Financial Innovation, Financial Intermediation, Fixed Income, Corporate Bonds, Contracting, Covenants, Primary Offerings, WKSI, Securities Offering Reform, Underwriting Quality, WorldCom Litigation, Liability Risk

JEL Classification: G3, G32, G2

Suggested Citation

Grennan, Jillian and Musto, David K., Who Benefits from Bond Market Modernization? (August 30, 2018). Available at SSRN: https://ssrn.com/abstract=2713865 or http://dx.doi.org/10.2139/ssrn.2713865

Jillian Grennan (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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