7th Annual Texas Finance Festival Paper
56 Pages Posted: 12 Oct 2004
Date Written: October 2006
We investigate the effects of shareholder governance mechanisms on bondholders and document two new findings. First, the impact of shareholder control (proxied by large institutional blockholders) on credit risk depends on takeover vulnerability. Shareholder control is associated with higher (lower) yields if the firm is exposed to (protected from)takeovers. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 66 basis points. Second, event risk covenants reduce the credit risk associated with strong shareholder governance. Therefore, without bond covenants, shareholder governance and bondholder interests diverge.
Keywords: corporate governance, takeovers, shareholder controls
Suggested Citation: Suggested Citation
Cremers, Martijn and Nair, Vinay B. and Wei, Chenyang (Jason), Governance Mechanisms and Bond Prices (October 2006). Yale ICF Working Paper No. 06-30; NYU, Law and Economics Research Paper No. 04-007; 7th Annual Texas Finance Festival Paper. Available at SSRN: https://ssrn.com/abstract=516564 or http://dx.doi.org/10.2139/ssrn.516564