IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

How legal environments affect the use of bond covenants

Listed author(s):
  • Yaxuan Qi

    (Department of Finance, John Molson School of Business, Concordia University, Montreal, Canada)

  • Lukas Roth

    (Department of Finance and Management Science, Alberta School of Business, University of Alberta, Edmonton, Canada)

  • John K Wald

    (Department of Finance, College of Business, University of Texas at San Antonio, San Antonio, USA)

We examine how country-level legal and institutional investor protection shapes contractual creditor protection. We examine debt covenant information from foreign corporate bonds issued in the US from more than 50 countries between 1991 and 2007. We find that bonds of firms incorporated in countries with stronger creditor rights use fewer covenants. This finding suggests that creditor protection substitutes for covenants in reducing the agency cost of debt. In contrast, bonds of firms with stronger shareholder rights or firms with stronger firm-level corporate governance use more covenants. These findings support the notion that firms with stronger shareholder control may face an increase in the shareholder–bondholder conflict and therefore prefer to use more covenants. However, greater shareholder rights are not associated with the use of more covenant restrictions on equity issuance, as firms with greater minority shareholder protection are unlikely to suffer such equity dilution.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

File URL:
File Function: Link to full text HTML
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Palgrave Macmillan & Academy of International Business in its journal Journal of International Business Studies.

Volume (Year): 42 (2011)
Issue (Month): 2 (February)
Pages: 235-262

in new window

Handle: RePEc:pal:jintbs:v:42:y:2011:i:2:p:235-262
Contact details of provider: Web page:

Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pal:jintbs:v:42:y:2011:i:2:p:235-262. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

or (Rebekah McClure)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.