Debt Covenants and Cross-Sectional Equity Returns

• 成果类型: Article
• 署名作者: Helwege, Jean; Huang, Jing-Zhi; Wang, Yuan
• 署名单位: University of California System; University of California Riverside; Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; Concordia University - Canada
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2015.2381
• 发表日期: 2017
• 页码: 1835-1854
• 关键词: debt covenants; Cross section of stock returns; covenant factor; Agency costs of debt

摘要

This paper investigates the impact of debt covenant protection on the cross section of equity returns with a firm-level covenant index and four subindices. We find that firms withweaker covenant protection ( lower covenant index levels) earn significantly higher risk-adjusted equity returns than do those firms with greater covenant protection. These results are stronger for covenant indices that are related to investments, subsequent financing, and event risk. The difference between high and low covenant index stocks is more pronounced when agency problems between shareholders and debtholders are more severe, suggesting that the covenant effect arises from an inability to control shareholder risk taking.