Do Country-Level Investor Protections Impact Security-Level Contract Design? Evidence from Foreign Bond Covenants

51 Pages Posted: 27 Jan 2009

See all articles by Darius P. Miller

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

Natalia Reisel

Fordham University

Multiple version iconThere are 2 versions of this paper

Date Written: January 25, 2009

Abstract

Better legal protection of investors in a country is a central theme of international corporate governance research. However, investor protections can be derived not only from legal rights provided by countries’ laws but also from rights attached to individual securities at the issuer’s discretion. Using a cross-country sample of restrictive covenants attached to public corporate bonds, we show that countries’ legal investor protections impact security level contract design. When the legal protection of investors in a country is weak, investors are more likely to require security level protections that limit potentially opportunistic actions of managers. The findings suggest that sophisticated issuers and investors can create international contracts that adapt to weak legal institutions and therefore add to our understanding of how the overall investor protection environment is formed.

Suggested Citation

Miller, Darius P. and Reisel, Natalia, Do Country-Level Investor Protections Impact Security-Level Contract Design? Evidence from Foreign Bond Covenants (January 25, 2009). Available at SSRN: https://ssrn.com/abstract=1333408 or http://dx.doi.org/10.2139/ssrn.1333408

Darius P. Miller (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Natalia Reisel

Fordham University ( email )

45 Columbus Ave
New York, NY 10023
United States

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