Managerial Ability, Information Quality, and the Design and Pricing of Corporate Debt

44 Pages Posted: 28 Dec 2017

Date Written: December 01, 2015

Abstract

We examine if managerial ability affects the efficiency of the contracting environment with lenders. We find that higher ability alters the balance of information-sensitive covenants demanded by outside investors, increases the issuance of bonds with longer maturity, and decreases the issuance of senior secured debt. We also document higher ability reduces the risk premium demanded by investors on information-sensitive debt. These results are collectively consistent with the premise that the mitigation of information risk is an important dimension of managerial ability that has a direct bearing on the structure and pricing of corporate debt.

Keywords: managerial ability, asymmetric information, corporate debt

JEL Classification: G12, G32, G34

Suggested Citation

Petkevich, Alex and Prevost, Andrew K., Managerial Ability, Information Quality, and the Design and Pricing of Corporate Debt (December 01, 2015). Review of Quantitative Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3092420

Alex Petkevich

University of Denver ( email )

2101 S. University Blvd.
Denver, CO 80208-8921
United States

HOME PAGE: http://https://sites.google.com/view/alexpetkevich/home

Andrew K. Prevost (Contact Author)

University of Vermont ( email )

Burlington, VT 05405
United States

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