The Value of Creditor Control in Corporate Bonds

62 Pages Posted: 7 Mar 2014 Last revised: 1 Jun 2016

See all articles by Peter Feldhütter

Peter Feldhütter

Copenhagen Business School

Edith S. Hotchkiss

Boston College - Carroll School of Management

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group

Date Written: September 7, 2015

Abstract

This paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control. We estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using CDS contracts. Empirically, we find this premium increases as firm credit quality decreases and around important credit events such as defaults, bankruptcies, and covenant violations; the increase is greatest for bonds most pivotal to changes in control. Changes in bond and CDS liquidity do not appear to drive increases in the premium.

Keywords: Creditor control, Credit default swap (CDS), Distress, Default, Bankruptcy, Covenant violation, Liquidity, Corporate bonds

JEL Classification: G13, G33, G34

Suggested Citation

Feldhütter, Peter and Hotchkiss, Edith S. and Karakaş, Oğuzhan, The Value of Creditor Control in Corporate Bonds (September 7, 2015). Journal of Financial Economics (JFE), Volume 121, Issue 1, pp. 1-27, July 2016. Available at SSRN: https://ssrn.com/abstract=2405036 or http://dx.doi.org/10.2139/ssrn.2405036

Peter Feldhütter (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Edith S. Hotchkiss

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group ( email )

University of Cambridge
Trumpington St.
Cambridge, CB2 1AG
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
559
Abstract Views
2,581
rank
48,184
PlumX Metrics