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Governance Mechanisms and Bond Prices

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Author Info
K.J. Martijn Cremers
Vinay B. Nair
Chenyang Wei

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Abstract

We investigate the effects of shareholder governance mechanisms on bondholders and document two new findings. First, the impact of shareholder control (proxied by large institutional blockholders) on credit risk depends on takeover vulnerability. Shareholder control is associated with higher (lower) yields if the firm is exposed to (protected from) takeovers. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 66 basis points. Second, event risk covenants reduce the credit risk associated with strong shareholder governance. Therefore, without bond covenants, shareholder governance, and bondholder interests diverge. , Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhm006
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 20 (2007)
Issue (Month): 5 (200707)
Pages: 1359-1388
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Handle: RePEc:oup:rfinst:v:20:y:2007:i:5:p:1359-1388

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  1. Low, Angie & Makhija, Anil K. & Sanders, Anthony B., 2007. "The Impact of Shareholder Power on Bondholders: Evidence from Mergers and Acquisitions," Working Paper Series 2007-5, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
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This page was last updated on 2009-11-28.

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