By Glenn Yago
ISBN-10: 019506111X
ISBN-13: 9780195061116
Junk bonds burst into the nation's headlines because the quickest turning out to be and such a lot arguable monetary tools of the Nineteen Eighties. Branded with an unflattering nickname, those excessive yield securities have been tarnished within the public eye via waves of damaging exposure. Critics solid the financiers and marketers who pioneered their use as symbols of a decade of greed and fiscal extra. by way of the tip of the Eighties, the heyday of junk bonds had doubtless come to a detailed with the conviction of junk bond pioneer Michael Milken and the financial ruin of Drexel Burnham Lambert, the brokerage that ruled the excessive yield industry. however the controversy surrounding junk bonds keeps. Now, in Junk Bonds, enterprise professor Glenn Yago turns the tables on traditional knowledge approximately this new monetary know-how. He deals the 1st systematic exam of the evidence approximately excessive yield securities. His research offers challenging facts that demystifies junk bonds and explodes the various well known myths that encompass them. Junk Bonds sheds gentle at the function of excessive yield financing in what Yago calls the democratization of capital. sooner than the appearance of junk bonds, in simple terms businesses with an "investment grade" rating--five percentage of the 23,000 American businesses with revenues over $35 million--had entry to long-term capital. In influence, the writer argues, ninety five percentage of yankee businesses have been denied the ability to finance progress and company improvement. Yago indicates how junk bonds replaced all that, respiring lifestyles into hundreds of thousands of yank businesses that have been refrained from by means of the capital markets. His learn demonstrates that those "junk" businesses outperformed many Fortune 500 organisations in task production, product improvement, revenues, and enterprise innovation. the true contribution of junk bonds, in response to Yago, was once to enhance the productiveness and competitiveness of yank enterprise through restructuring businesses within the wake of the company conglomerations of the Nineteen Sixties and Seventies. His findings convey that divestitures by way of businesses financed with excessive yield bonds weren't unavoidably damaging. Many sold-off devices flourished as self reliant businesses at a time while a number of "investment grade" businesses stagnated or closed crops or fired employees. This restructuring of company the USA has enabled companies to compete in a altering overseas setting, reaping benefits managers, staff, stockholders, and traders alike. Junk Bonds offers readers with a scholarly research that shears away the hype and hysteria that frequently accompany speedy switch. And at a time whilst Wall highway is below better scrutiny than at any time because the melancholy, this provocative learn offers a well timed and considerate contribution to the controversy surrounding junk bonds.
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Additional resources for Junk Bonds: How High Yield Securities Restructured Corporate America
Sample text
He viewed the use of that unfortunate moniker philosophically and with some humor, When you look back in history, you find that most things that are new are all rated junk Everything that seems to stand the test of time is junk. And particularly, everything someone else thinks of is junk. And I think this somewhat characterizes the way the junk bond market was greeted. 24 Junk Bonds Figure 2-1. ) By 1983, the amount of high yield securities began to rise sharply (Figure 2-1). Due to the growth of new noninvestment grade issues, by 1987 junk securities represented approximately 24 percent of all outstanding corporate Figure 2-2.
Firms. Foreign manufacturers showed a lower after-tax cost of capital, increased volume and profitability growth rates, and reduced short-term pressures for share/price performance. As a percent of GNP, corporate debt is 100 percent in Japan, 70 percent in Germany, 65 percent in Canada, and only 42 percent in the United States. Examining evidence from the oil and tobacco industries, Jensen (1986) showed that when cash flow was used to service debt, other value-increasing transactions ensued through changes in corporate strategy, acquisitions, product introductions, and development of new markets.
Together, these needs gave birth to the new issue junk bond market. In the early 1970s, a young student at the Wharton School, the business school at the University of Pennsylvania, had carefully reviewed the studies by Hickman and combined them with his own research to form the analytic basis for what turned out to be the new issue high yield bond market. His name was Michael R. Milken, and his role in the subsequent development of the high yield bond market led the Wall Street Journal (in 1989, on its one-hundredth anniversary of publishing) to refer to him as "arguably the most important financial thinker of the century" and list him as one of the ten most important business leaders who shaped the century.