Control/ownership structure, creditor rights protection, and the cost of debt financing: International evidence

Narjess Boubakri and Hatem Ghouma

Journal of Banking & Finance, 2010, vol. 34, issue 10, 2481-2499

Abstract: We explore the effect of governance on bond yield-spreads and ratings in a multinational sample of firms. We find strong evidence that ultimate ownership (i.e., the voting/cash-flow rights wedge) and family control have a positive and significant effect on bond yield-spreads, and a negative and significant effect on bond ratings. Control in the hands of widely held financial firms has a positive effect on bond ratings only, while State control has no effect on either bond yield-spreads or ratings. We also find that a higher protection of debtholders' rights generally reduces bond yield-spreads and increases bond ratings. Our results additionally show that, for both bondholders and rating agencies, the enforcement of debt laws is crucially important. Finally, we document a negative effect of debt covenants on debt costs when there is a high expropriation risk and poor creditor rights protection.

Keywords: Bond; yields; and; ratings; Ultimate; ownership; Investor; protection; Debt; enforcement (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (117)

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