Creditor Controls, Corporate Governance, and Firm Investments

Abstract

This study aims to explore the relationship between the new approach of creditor control rights measurement (introduced by Feldhütter, Hotchkiss, and Karakaş (2016)) and corporate governance as well as firm investments activities. The new measure is constructed from the price difference between the CDS implied bond and its underlying bond. . We show that creditor control rights increase as the firm’s default probability gets larger. After the financial crisis, creditor control rights are associated with default probability more than before and during the crisis periods. In addition, we find that creditor control rights are positively related to corporate governance. Last but not the least, the firm investments tend to be higher as the premium gets larger.

Keywords: Creditor Controls, Corporate Governance, Firm Investments