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Does Corporate Governance Matter to Bondholders?

39 Pages Posted: 9 Apr 2004  

Mark Klock


Sattar Mansi

Virginia Tech

William F. Maxwell

SMU - Cox School

Multiple version iconThere are 2 versions of this paper

Date Written: April 6, 2004


We examine the relation between the cost of debt financing and a governance index that contains various antitakeover and shareholder protection provisions. Using firm-level data from the Investors Research Responsibility Center for the period 1990 through 2000, we find that antitakeover governance provisions lower the cost of debt financing. Segmenting the data into firms with strongest management rights (strongest antitakeover provisions) and firms with strongest shareholder rights (weakest antitakeover provisions), we find that strong antitakeover provisions are associated with a lower cost of debt financing while weak antitakeover provisions are associated with a higher cost of debt financing, with a difference of about thirty-four basis points between the two groups. Overall, the results suggest that antitakeover governance provisions, although not beneficial to stockholders, are viewed favorably in the bond market.

Notes: Paper title has changed to 'Does Corporate Governance Matter to Bondholders?' as an accepted paper and is located at

Keywords: agency cost, antitakeover provisions, corporate governance, debt, takeover defenses

JEL Classification: G32, G34

Suggested Citation

Klock, Mark and Mansi, Sattar and Maxwell, William F., Does Corporate Governance Matter to Bondholders? (April 6, 2004). Available at SSRN: or

Mark Klock (Contact Author)


No Address Available

Sattar Mansi

Virginia Tech ( email )

William Maxwell

SMU - Cox School ( email )

Maguire Bldg, RM 440C
Dallas, TX, TX 75214
United States

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