The value of creditor control in corporate bonds

Peter Feldhütter, Edith Hotchkiss and Oğuzhan Karakaş

Journal of Financial Economics, 2016, vol. 121, issue 1, 1-27

Abstract: This paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control. We estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swap (CDS) contracts. We find empirically that this premium increases as firm credit quality decreases and around important credit events such as defaults, bankruptcies, and covenant violations. The increase is greatest for bonds most pivotal to changes in control. Changes in bond and CDS liquidity do not appear to drive increases in the premium.

Keywords: Creditor control; Corporate bonds; Distress; Bankruptcy; CDS (search for similar items in EconPapers)
JEL-codes: G13 G33 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:121:y:2016:i:1:p:1-27

DOI: 10.1016/j.jfineco.2016.03.007

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