Is It Worthwhile to Augment the Legal Protection of Public Debt Placed by Privately Held Companies?

58 Pages Posted: 5 Jun 2017 Last revised: 20 Nov 2018

See all articles by Keren Bar-Hava

Keren Bar-Hava

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Roi Katz

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Date Written: November 2018

Abstract

We examine the effects of a law amendment in Israel in 2011 that imposes a set of minimum corporate governance standards on privately held firms that issue publicly traded bonds. Two main results emerge. First, consistent with US evidence, the improved bondholder protection boosts the immediate market valuation of private firms' bonds. Second, the amendment suppresses the private bonds market. After the amendment enactment, the number of private bond IPOs decreases sharply, and an extraordinary proportion of private firms redeem their existing public bonds early. However, given that the exiting firms had more related party transactions, it can be argued that the amendment increases market quality.

Keywords: Debt of privately held companies; corporate governance improvements; Regulatory reforms in bond markets

JEL Classification: G32; G34; G38

Suggested Citation

Bar-Hava, Keren and Katz, Roi and Lauterbach, Beni, Is It Worthwhile to Augment the Legal Protection of Public Debt Placed by Privately Held Companies? (November 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 581/2018. Available at SSRN: https://ssrn.com/abstract=2980278 or http://dx.doi.org/10.2139/ssrn.2980278

Keren Bar-Hava

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Roi Katz

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Beni Lauterbach (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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