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Foreign-law premium for European high-yield corporate bonds

Author

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  • Jelic, Ranko
  • Zeng, Yiming
  • Karouzakis, Nikolaos

Abstract

We provide novel evidence on importance of governing laws for returns of high-yield corporate bonds. Around 29% of sample bonds are governed by laws which are different from laws of issuers’ countries of domicile. The most popular foreign law is English, followed by New York, and German laws. The foreign-law bonds exhibit higher excess returns than their domestic-law counterparts. The effect of foreign law on excess returns increases with an increase in downside risk. This conditional effect is particularly evident for English foreign governing law. The results are robust to controls for endogeneity concerns, alternative proxies, and model specifications.

Suggested Citation

  • Jelic, Ranko & Zeng, Yiming & Karouzakis, Nikolaos, 2023. "Foreign-law premium for European high-yield corporate bonds," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322007607
    DOI: 10.1016/j.frl.2022.103584
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    More about this item

    Keywords

    European high yield bonds; Governing law; Foreign-law premium; Common factors;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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