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

See all articles by Sadra Amiri-Moghadam

Sadra Amiri-Moghadam

University of Illinois at Urbana-Champaign - College of Business

Siamak Javadi

University of Texas - Rio Grande Valley

Mahdi Rastad

Orfalea College of Business, California State Polytechnic University

Date Written: September 26, 2018

Abstract

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

Amiri-Moghadam, Sadra and Javadi, Siamak and Rastad, Mahdi, The Impact of Stronger Shareholder Control on Bondholders (September 26, 2018). Forthcoming at the Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=2542878 or http://dx.doi.org/10.2139/ssrn.2542878

Sadra Amiri-Moghadam

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

Siamak Javadi

University of Texas - Rio Grande Valley ( email )

1201 W. University Dr.
Edinburg, TX 78539
United States

Mahdi Rastad (Contact Author)

Orfalea College of Business, California State Polytechnic University ( email )

San Luis Obispo, CA 93407
United States

HOME PAGE: http://www.cob.calpoly.edu/faculty/mahdi-rastad/

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