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An empirical analysis of the determinants and pricing of corporate bond clawbacks

Kenneth Daniels, Demissew Diro Ejara and Jayaraman Vijayakumar

Journal of Corporate Finance, 2009, vol. 15, issue 4, 431-446

Abstract: This paper presents empirical analysis of the factors that affect a firm's decision to use a clawback provision in debt and the yield impact of including the clawback provision. The results show that relatively smaller firms with low credit rating and low profitability favor the usage of clawback provisions. We also find that debt with clawback provisions have the highest yield spread followed by callable bonds and straight debt. Convertible bonds that offer investors the option to convert to equity have lower yield spread. This implies that issuers can trade off flexibility for higher interest cost and that the clawback feature may be a significant financial innovation which reduces information asymmetry and creates an entry point for small firms to gain access to the public bond markets.

Keywords: financial; innovation; (null); covenants; (null); clawback; (null); dilution; (null); corporate; control (search for similar items in EconPapers)
Date: 2009
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