The role of covenants in bond issue and investment policy. The case of Russian companies

Flavio Bazzana (), Anna Zadorozhnaya () and Roberto Gabriele ()

No 2014/05, DEM Discussion Papers from Department of Economics and Management

Abstract: This study examines the use and determinants of covenants in public debt issued by Russian companies. On the basis of issue characteristics, firm characteristics and systemic risk variables, we investigate that the likelihood of including covenants clause in financial contracts is positively related to the riskiness of bond issues. Us- ing a hand-collected database of Russian firms that place bonds both in domestic and Eurobond market, we provide evidence that the covenant protection in Euro- bond market has a positive impact for those firms that issue in Russian market, with a reduction in covenant intensity. We document that a negative relation be- tween offering yield and the presence of covenants which is consistent with the costly contracting hypothesis (CCH) is registered only in Eurobond market. We al- so find a non linear relation between investment and covenant protection for the firm that issue in Russian market, indicating a possible optimal covenant protec- tion for a bond issue.

Keywords: covenants; bond; Russian companies (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cis, nep-law and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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