The cost of financing with callable bonds: an empirical study

This paper examines the cost of financing with callable bonds on a sample of 2927 US bonds issued at par between 1984 and 2014. Our hedonic regression model indicates, among other things, that issuing callable bonds rather than ordinary bonds costs about 10% of the coupon rate and that the additional cost may vary significantly across time. Interestingly, results of a couple of decomposition models suggest that issuers may benefit from issuing callable bonds.