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

42 Pages Posted: 26 Mar 2018 Last revised: 3 Dec 2019

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)

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 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' IPO market. The number of privately held firms issuing public debt for the first time decreases sharply after the amendment enactment. This unintended result of the amendment illustrates the pitfall of legal intervention.

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? (March 22, 2018). Available at SSRN: https://ssrn.com/abstract=3147144 or http://dx.doi.org/10.2139/ssrn.3147144

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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