How legal environments affect the use of bond covenants

• 成果类型: Article
• 署名作者: Qi, Yaxuan; Roth, Lukas; Wald, John K.
• 署名单位: University of Texas System; University of Texas at San Antonio; Concordia University - Canada; University of Alberta
• 刊物名称: JOURNAL OF INTERNATIONAL BUSINESS STUDIES
• ISSN/ISSBN: 0047-2506
• DOI: 10.1057/jibs.2010.52
• 发表日期: 2011
• 页码: 235-262
• 关键词: Covenants; CONTRACTS; Creditor rights; SHAREHOLDER RIGHTS; corporate governance

摘要

We examine how country-level legal and institutional investor protection shapes contractual creditor protection. We examine debt covenant information from foreign corporate bonds issued in the US from more than 50 countries between 1991 and 2007. We find that bonds of firms incorporated in countries with stronger creditor rights use fewer covenants. This finding suggests that creditor protection substitutes for covenants in reducing the agency cost of debt. In contrast, bonds of firms with stronger shareholder rights or firms with stronger firm-level corporate governance use more covenants. These findings support the notion that firms with stronger shareholder control may face an increase in the shareholder-bondholder conflict and therefore prefer to use more covenants. However, greater shareholder rights are not associated with the use of more covenant restrictions on equity issuance, as firms with greater minority shareholder protection are unlikely to suffer such equity dilution. Journal of International Business Studies (2011) 42, 235-262. doi:10.1057/jibs.2010.52