The aftermath of covenant violations: Evidence from China's corporate debt securities

Guang Xu and Xiaoyan Zhang

Journal of Empirical Finance, 2024, vol. 78, issue C

Abstract: We document a sharp and persistent decline in bond issuances following covenant violations also called technical defaults. However, we find no evidence that firms’ investment and performance change after technical defaults. Furthermore, we document that most of the technical defaults are waived off by bondholders through the debenture holders’ meetings. Although covenants serve as tripwires for renegotiation between bond issuers and investors, control rights are rarely transferred from shareholders to bond investors following technical defaults.

Keywords: Bond covenant; Technical default; Investor protection (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:78:y:2024:i:c:s092753982400063x

DOI: 10.1016/j.jempfin.2024.101528

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