Investment Opportunities and the Design of Debt Securities

Marcel Kahan and David Yermack

The Journal of Law, Economics, and Organization, 1998, vol. 14, issue 1, 136-51

Abstract: We investigate a puzzling empirical regularity: the near-total absence of restrictive covenants from publicly traded convertible bonds issued by U.S. companies. In a study of 192 recent debt issues, we find that an issuer's investment opportunities are negatively related to the presence of covenants and positively associated with the incidence of convertibility. The results support an interpretation that covenants impose costs by limiting managers' choices, leading firms that value managerial flexibility to prefer convertibility as a method of reducing the agency costs of debt. Copyright 1998 by Oxford University Press.

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (35)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Investment Opportunities and the Design of Debt Securities (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:14:y:1998:i:1:p:136-51

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().