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Control/ownership structure, creditor rights protection, and the cost of debt financing: International evidence

Listed author(s):
  • Boubakri, Narjess
  • Ghouma, Hatem
Registered author(s):

    We explore the effect of governance on bond yield-spreads and ratings in a multinational sample of firms. We find strong evidence that ultimate ownership (i.e., the voting/cash-flow rights wedge) and family control have a positive and significant effect on bond yield-spreads, and a negative and significant effect on bond ratings. Control in the hands of widely held financial firms has a positive effect on bond ratings only, while State control has no effect on either bond yield-spreads or ratings. We also find that a higher protection of debtholders' rights generally reduces bond yield-spreads and increases bond ratings. Our results additionally show that, for both bondholders and rating agencies, the enforcement of debt laws is crucially important. Finally, we document a negative effect of debt covenants on debt costs when there is a high expropriation risk and poor creditor rights protection.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00132-9
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 10 (October)
    Pages: 2481-2499

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:10:p:2481-2499
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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