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Does Corporate Governance Matter to Bondholders?

Mark Klock


Sattar Mansi

Virginia Tech

William F. Maxwell

SMU - Cox School

April 6, 2004

We examine the relation between the cost of debt financing and a governance index that contains various antitakeover and shareholder protection provisions. Using firm-level data from the Investors Research Responsibility Center for the period 1990 through 2000, we find that antitakeover governance provisions lower the cost of debt financing. Segmenting the data into firms with strongest management rights (strongest antitakeover provisions) and firms with strongest shareholder rights (weakest antitakeover provisions), we find that strong antitakeover provisions are associated with a lower cost of debt financing while weak antitakeover provisions are associated with a higher cost of debt financing, with a difference of about thirty-four basis points between the two groups. Overall, the results suggest that antitakeover governance provisions, although not beneficial to stockholders, are viewed favorably in the bond market.

Note: Paper title has changed to 'Does Corporate Governance Matter to Bondholders?' as an accepted paper and is located at http://ssrn.com/abstract=563882.

Number of Pages in PDF File: 39

Keywords: agency cost, antitakeover provisions, corporate governance, debt, takeover defenses

JEL Classification: G32, G34

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Date posted: April 9, 2004  

Suggested Citation

Klock, Mark and Mansi, Sattar and Maxwell, William F., Does Corporate Governance Matter to Bondholders? (April 6, 2004). Available at SSRN: http://ssrn.com/abstract=527663 or http://dx.doi.org/10.2139/ssrn.527663

Contact Information

Mark S. Klock (Contact Author)
No Address Available
United States
Sattar Mansi
Virginia Tech ( email )
William F. Maxwell
SMU - Cox School ( email )
Maguire Bldg, RM 440C
Dallas, TX, TX 75214
United States
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