The Impact of Stronger Shareholder Control on Bondholders
Forthcoming at the Journal of Financial and Quantitative Analysis
87 Pages Posted: 30 Dec 2014 Last revised: 2 Feb 2020
Date Written: September 26, 2018
We study the impact of stronger shareholder control on bondholders. We find that the passage of shareholder-sponsored governance proposals causes a decline in CDS spreads, indicating a net positive effect on bondholders. Evidence suggests that the direct benefit of stronger shareholder control, through “management disciplining” channel, is larger than the combined adverse effects of directly escalating shareholder-bondholder conflict and indirectly exacerbating exposure to shareholder opportunism. Results are stronger for firms with existing high levels of shareholder-bondholder conflict and for proposals that mitigate managerial entrenchment without exacerbating risk-shifting. Finally, stronger shareholder control improves credit ratings and operating performance in the long-term.
Keywords: Corporate Governance, Debt, Agency Cost, Shareholder Meetings, Regression Discontinuity, Event Studies
JEL Classification: G34, G32, G14
Suggested Citation: Suggested Citation