An Empirical Analysis of the Determinants and Pricing of Corporate Bond Clawbacks

45 Pages Posted: 17 Mar 2009 Last revised: 13 Oct 2009

See all articles by Kenneth N. Daniels

Kenneth N. Daniels

Daniels Foundation for Impact Investments and Development

Demissew Diro Ejara

University of New Haven

Jayaraman Vijayakumar

Virginia Commonwealth University (VCU) - Department of Accounting

Date Written: March 16, 2009

Abstract

This paper presents empirical analysis of the factors that affect a firm's decision to use a clawback provision in debt and the yield impact of including the clawback provision. The results show that relatively smaller firms with low credit rating and low profitability favor the usage of clawback provisions. We also find that debt with clawback provisions have the highest yield spread followed by callable bonds and straight debt. Convertible bonds that offer investors the option to convert to equity have lower yield spread. This implies that issuers can trade off flexibility for higher interest cost and that the clawback feature may be a significant financial innovation which reduces information asymmetry and creates an entry point for small firms to gain access to the public bond markets.

Keywords: clawbacks, IPO, high yield, debt pricing, renegotiation

JEL Classification: G21, G32, G33

Suggested Citation

Daniels, Kenneth N. and Ejara, Demissew Diro and Vijayakumar, Jayaraman, An Empirical Analysis of the Determinants and Pricing of Corporate Bond Clawbacks (March 16, 2009). Journal of Corporate Finance, Vol. 15 No. 4, 2009, Available at SSRN: https://ssrn.com/abstract=1360802

Kenneth N. Daniels (Contact Author)

Daniels Foundation for Impact Investments and Development ( email )

New Jersey, NJ 07018
United States

Demissew Diro Ejara

University of New Haven ( email )

300 Boston Post Road
Pompea College of Business
West Haven, CT 06516
United States
(203) 932-7150 (Phone)

Jayaraman Vijayakumar

Virginia Commonwealth University (VCU) - Department of Accounting ( email )

Richmond, VA 23284
United States

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