When less is not always more: Issue frequency and borrowing costs in commercial paper market

Abstract

Despite being issued by sizable, financially sound corporations with strong ratings, commercial papers (CPs) exhibit significant yield differences, even among entities within the same rating bracket. We provide novel empirical evidence of an important factor that determines CP yields i.e. frequency of CP issuance. Using data on primary CP issues in India, we find that borrowing costs are significantly lower for each subsequent issue of a CP issuer. Consistent with asymmetric information channel, we find that yield premium for infrequent issues is higher in periods of heightened information asymmetry such as high equity market volatility and COVID-19 pandemic period.