Do foreign institutional shareholders affect international debt contracting? Evidence from Yankee bond covenants

Paul Brockman (), Wolfgang Drobetz, Sadok El Ghoul (), Omrane Guedhami () and Ying Zheng ()
Additional contact information
Paul Brockman: Lehigh University
Sadok El Ghoul: Campus Saint-Jean, University of Alberta
Omrane Guedhami: University of South Carolina
Ying Zheng: Bryant University

Journal of International Business Studies, 2024, vol. 55, issue 5, No 3, 576 pages

Abstract: Abstract The international bond market is the largest component of the international capital markets. Previous research shows that the liability of foreignness (LOF) imposes significant costs on international debt contracting. The purpose of this study is to examine the impact of foreign institutional shareholders (FISs) on the costs of international debt contracting. While the presence of FISs could lead to a reduction in LOF-related costs, it can also lead to an increase in the costs arising from agency conflicts between shareholders and bondholders. We examine the impact of FISs on the prevalence of restrictive bond covenants using a sample of 956 Yankee bonds from 26 countries over the period 2001–2019. We find a significantly negative relationship between FIS ownership and bond covenants. This inverse relationship is strongest for U.S. institutional ownership, and for covenants designed to mitigate opportunistic behavior such as claim dilution and wealth transfers. We also show that the inverse relationship between U.S. institutional ownership and bond covenants is moderated by variables related to corporate governance, information asymmetry, and agency costs of debt. Additional analyses show that U.S. institutional ownership has a significant pricing effect on Yankee bond investors by lowering an issuer’s cost of borrowing.

Keywords: Institutional ownership; Foreign investors; Bond covenants; Corporate governance (search for similar items in EconPapers)
JEL-codes: G24 G32 G34 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41267-023-00667-2 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:pal:jintbs:v:55:y:2024:i:5:d:10.1057_s41267-023-00667-2

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/41267/PS2

DOI: 10.1057/s41267-023-00667-2

Access Statistics for this article

Journal of International Business Studies is currently edited by John Cantwell

More articles in Journal of International Business Studies from Palgrave Macmillan, Academy of International Business
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().