Governance Mechanisms and Bond Prices

Martijn Cremers, Vinay Nair and Chenyang Wei

Yale School of Management Working Papers from Yale School of Management

Abstract: We investigate the effects of shareholder governance mechanisms on bondholders and document two new findings. First, the impact of shareholder control (proxied by large institutional blockholders) on credit risk depends on takeover vulnerability. Shareholder control is associated with higher (lower) yields if the firm is exposed to (protected from)takeovers. In the presence of shareholder control, the difference in bond yields due to differences in takeover vulnerability can be as high as 66 basis points. Second, event risk covenants reduce the credit risk associated with strong shareholder governance. Therefore, without bond covenants, shareholder governance and bondholder interests diverge.

Keywords: corporate governance; takeovers; shareholder controls Working Paper Series (search for similar items in EconPapers)
Date: 2004-10-01, Revised 2006-11-01
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Journal Article: Governance Mechanisms and Bond Prices (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:wpaper:amz2484

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