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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

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.

Suggested Citation

  • Matteo P. Arena & John S. Howe, 2009. "Takeover Exposure, Agency, And The Choice Between Private And Public Debt," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(2), pages 199-230, June.
  • Handle: RePEc:bla:jfnres:v:32:y:2009:i:2:p:199-230
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    File URL: https://doi.org/10.1111/j.1475-6803.2009.01248.x
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    References listed on IDEAS

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    Citations

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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. repec:eee:riibaf:v:45:y:2018:i:c:p:454-466 is not listed on IDEAS
    3. Arena, Matteo P. & Dewally, Michaƫl, 2012. "Firm location and corporate debt," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1079-1092.
    4. Song Han & Alan G. Huang & Madhu Kalimipalli & Ke Wang, 2018. "Information and Liquidity of OTC Securities : Evidence from Public Registration of Rule 144A Bonds," Finance and Economics Discussion Series 2018-061, Board of Governors of the Federal Reserve System (US).
    5. repec:eee:jbfina:v:99:y:2019:i:c:p:202-221 is not listed on IDEAS
    6. Meneghetti, Costanza, 2012. "Managerial Incentives and the Choice between Public and Bank Debt," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 65-91.

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