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What Does Nasdaq's High Yield Bond Market Reveal about Bondholder-Shareholder Conflict?

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Author Info

  • Gordon J. Alexander
  • Amy K. Edwards
  • Michael G. Ferri

Abstract

We use data from Nasdaq’s FIPS system for reporting transactions in selected high-yield corporate bonds to investigate the relationship between the returns on a firm’s stock and the returns on its publicly traded, high-yield debt. Regression models and analysis of the behavior of the returns around events associated with agency conflict show that the returns follow complex patterns of similarity and divergence. Positive co-movement is the dominant form of the relationship, but opposite movement of the bond and stock returns around those events indicates agency conflicts between bondholders and stockholders.We use data from Nasdaq’s FIPS system for reporting transactions in selected high-yield corporate bonds to investigate the relationship between the returns on a firm’s stock and the returns on its publicly traded, high-yield debt. Regression models and analysis of the behavior of the returns around events associated with agency conflict show that the returns follow complex patterns of similarity and divergence. Positive co-movement is the dominant form of the relationship, but opposite movement of the bond and stock returns around those events indicates agency conflicts between bondholders and stockholders.

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Bibliographic Info

Article provided by Financial Management Association in its journal Financial Management.

Volume (Year): 29 (2000)
Issue (Month): 1 (Spring)
Pages:

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Handle: RePEc:fma:fmanag:alexander0

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Cited by:
  1. Szafarz, Ariane & Chapelle, Ariane & Brière, Marie, 2012. "No contagion, only globalization and flight to quality," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/7746, Université Paris-Dauphine.
  2. Klaus-Michael Menz, 2010. "Corporate Social Responsibility: Is it Rewarded by the Corporate Bond Market? A Critical Note," Journal of Business Ethics, Springer, vol. 96(1), pages 117-134, September.
  3. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
  4. Lars Norden & Martin Weber, 2004. "The comovement of credit default swap, bond and stock markets: an empirical analysis," CFS Working Paper Series 2004/20, Center for Financial Studies.
  5. Venus Khim-Sen Liew & Zhuo Qiao & Wing-keung Wong, 2010. "Linearity and stationarity of G7 government bond returns," Economics Bulletin, AccessEcon, vol. 30(4), pages 2642-2655.

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