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Governance Mechanisms and Bond PricesMartijn CremersUniversity of Notre Dame Vinay B. NairUniversity of Pennsylvania - Finance Department Chenyang (Jason) WeiFederal Reserve Banks - Federal Reserve Bank of Philadelphia October 2006 Yale ICF Working Paper No. 06-30 NYU, Law and Economics Research Paper No. 04-007 7th Annual Texas Finance Festival Paper 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.
Number of Pages in PDF File: 56 Keywords: corporate governance, takeovers, shareholder controls working papers seriesDate posted: October 12, 2004Suggested CitationContact Information
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