Bond Covenants, Bankruptcy Risk, and the Cost of Debt
| Autor: | Yaxuan Qi, John K. Wald, Sattar Mansi |
|---|---|
| Rok vydání: | 2020 |
| Předmět: |
040101 forestry
Economics and Econometrics 050208 finance Strategy and Management Bond 05 social sciences 04 agricultural and veterinary sciences Monetary economics Covenant Cost of capital Bankruptcy 0502 economics and business 0401 agriculture forestry and fisheries Bankruptcy risk Business Business and International Management Finance |
| Zdroj: | SSRN Electronic Journal. |
| ISSN: | 1556-5068 |
| DOI: | 10.2139/ssrn.3736019 |
| Popis: | Are all covenants equally effective at reducing the bondholder-shareholder conflict? Examining the most frequently used bond covenants, we document that four out of 24 restrictions are associated with significantly higher bankruptcy risk. The use of these Default Indicating covenants can be partly explained by faulty contract design, greater recovery in bankruptcy, or within-creditor conflicts. Firms that use In-House Counsel to help structure their bond issue and those that use Big 4 Auditors are also less likely to include Default Indicating covenants in their bonds. Further tests show that the use of these Default Indicating covenants is associated with higher bond and CDS spreads. Overall, the results help explain the prior evidence on the relation between covenant use and the cost of debt. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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