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

  • Matteo P. Arena
  • John S. Howe
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    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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    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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