University of Florida finance professor’s paper selected as best of the year

Murillo Campello’s award-winning research shows callable bonds reduce debt overhang and enhance corporate investment flexibility.

Murillo Campello, Joe B. Cordell Eminent Scholar at the University of Florida Warrington College of Business, and his coauthors received the IQAM Prize from the European Finance Association for their paper published in the Review of Finance.

The paper, “Credit risk, debt overhang, and the life cycle of callable bonds,” was selected as the best investments paper published in the journal within the past year.

In the paper, Campello and his coauthors demonstrate how callable bonds, which is corporate debt that allows companies to repay early at a predetermined price, can reduce “debt overhang,” a problem where existing debt discourages new investment.

The research finds callable bonds command a premium (averaging 27 basis points higher than non-callable bonds), rarely trade above their call price in secondary markets, and effectively mitigate debt overhang in corporate acquisitions and investments.

Importantly, the research shows callable bonds mitigate debt overhang in corporate acquisitions and investments. When target companies have significant non-callable debt, acquirers are more reluctant to proceed due to debt overhang concerns.

These findings have several implications: corporate financial officers face a trade-off between lower yields (non-callable) versus reduced debt overhang (callable); acquirers should carefully assess target companies’ debt structure; fixed-income investors get higher yields but limited upside with callable bonds; and from a macroeconomic perspective, the prevalence of callable debt may improve business cycle dynamics by reducing investment constraints during downturns.

Campello came to the University of Florida Warrington College of Business from Cornell University in 2024. An internationally recognized scholar of financial economics, Campello’s work has been cited by prominent policy authorities, such as the Federal Reserve chairman, mentioned in Congressional hearings, described in the Economic Report of the President, and used to advise the U.S. Supreme Court. He is also a research associate of the National Bureau of Economic Research.

Campello has published extensively in top finance journals and has served as an associate editor at several leading outlets. He is currently the managing editor of The Journal of Financial Intermediation. He has received the Rising Star award and has been named Distinguished Referee by The Review of Financial Studies twice for his referee work. In addition to the IQAM Prize recognition, he has also received the Goldman Sachs Prize from the Review of Finance as well as been twice nominated for the distinguished Brattle Prize of The Journal of Finance.

Campello earned his Ph.D. in finance from the University of Illinois, MS in business administration from the Pontifical Catholic University of Rio de Janeiro and bachelor’s in economics from the Federal University of Rio de Janeiro.