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Takeover Exposure, Agency, And The Choice Between Private And Public Debt

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  • Matteo P. Arena
  • John S. Howe
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    Abstract

    Abstract We examine how governance characteristics are related to the corporate choice between public and private debt. We find that firms with fewer takeover defenses and larger outside blockholder ownership are more likely to borrow from banks and to issue 144A debt. We also document that public debt cost is more sensitive to takeover exposure than bank debt cost. These results are consistent with the hypothesis that banks mitigate the expected negative effect of takeovers on debt value through covenants and debt renegotiations. Moreover, we show that firms with weaker internal monitoring are less likely to borrow from banks. Copyright (c) 2009 The Southern Finance Association and the Southwestern Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-6803.2009.01248.x
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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 32 (2009)
    Issue (Month): 2 ()
    Pages: 199-230

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    Handle: RePEc:bla:jfnres:v:32:y:2009:i:2:p:199-230

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    Web page: http://www.southwesternfinance.org/
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    Cited by:
    1. Arena, Matteo P. & Roper, Andrew H., 2010. "The effect of taxes on multinational debt location," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 637-654, December.
    2. Meneghetti, Costanza, 2012. "Managerial Incentives and the Choice between Public and Bank Debt," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 65-91.
    3. Arena, Matteo P. & Dewally, Michaƫl, 2012. "Firm location and corporate debt," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1079-1092.

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