Covenant Prices of US Corporate Bonds
71 Pages Posted: 20 Apr 2021 Last revised: 14 Feb 2023
Date Written: February 13, 2023
In this paper, we analyze the key drivers of bond covenant prices by employing a novel measurement approach based on secondary market data. We find that covenant prices vary significantly over time and are associated with market-wide credit risk, volatility, and macroeconomic variables. Apart from the time-series dynamics, there is also significant variation across bond and firm characteristics. In particular, covenant prices increase with the riskiness of bonds and are higher for firms that have more growth options, more tangible assets, and are smaller. Furthermore, we document a positive correlation between the prices of covenants and their subsequent inclusion rates.
Keywords: covenants, corporate bonds, debt pricing
JEL Classification: G32, G34
Suggested Citation: Suggested Citation