Creditor-control Rights and the Nonsynchronicity of Global CDS Markets
Iftekhar Hasan, Miriam Marra, Eliza Wu, Gaiyan Zhang
Review of Corporate Finance Studies,
forthcoming
Abstract
We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.
Read article
Poison Bonds
Rex Wang Renjie, Shuo Xia
IWH Discussion Papers,
No. 3,
2024
Abstract
This paper documents the rise of “poison bonds”, which are corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% since mid-2000s. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Our analysis suggests that this practice entrenches incumbent managers and destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of −7.3% per year. Our findings have important implications for the agency theory of debt: (i) more debt may not discipline the management; and (ii) even without financial distress, managerial entrenchment can lead to agency conflicts between shareholders and creditors.
Read article
OVERHANG: Debt overhang and green investments - the role of banks in climate-friendly management of emission-intensive fixed assets
OVERHANG: Debt overhang and green investments - the role of banks in climate-friendly management of emission-intensive fixed assets Subproject 1: Policy Changes, Lending and…
See page
Research Clusters
Three Research Clusters Research Cluster "Economic Dynamics and Stability" Research Questions This cluster focuses on empirical analyses of macroeconomic dynamics and stability.…
See page
Vocational Training
Vocational Training at IWH At the Halle Institute for Economic Research (IWH) the state-approved professions specialist in media and information services (m/f/x) [library] ,…
See page
Poison Bonds
Shuo Xia, Rex Wang Renjie
SSRN Discussion Paper,
2023
Abstract
This paper documents the rise of "poison bonds", which are corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% after 2005. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Further analyses suggest that this practice entrenches incumbent managers, coincidentally benefits bondholders, but destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of -7.3% per year. Our findings have important implications for understanding the agency benefits and costs of debt: (1) more debt does not necessarily discipline the management; and (2) even without financial distress, managerial entrenchment can lead to conflicts between shareholders and creditors.
Read article
Vocational Training
Vocational Training at IWH At the Halle Institute for Economic Research (IWH) the state-approved professions specialist in media and information services (m/f/x) [library] ,…
See page
The Geography of Information: Evidence from the Public Debt Market
Bill Francis, Iftekhar Hasan, Maya Waisman
Journal of Economic Geography,
No. 1,
2023
Abstract
nWe investigate the link between the spatial concentration of firms in large, central metropolitans (i.e. urban agglomeration) and the cost of public corporate debt. Looking at bond issues over the period 1985–2014, we find that bonds issued by companies headquartered in urban agglomerates have lower at-issue yield spreads than bonds issued by firms based in remote, sparsely populated areas. Measures of the count of institutional bondholders in a firm’s vicinity confirm that the spatial cross-sectional variation in bond spreads is driven by the proximity of metropolitan firms to large concentrations of institutional investors. Our results are robust to controls for firm productivity and governance, analyst following, and exogenous shocks to institutional investor attention. The effect of headquarters location on bond spreads is especially pronounced for more difficult to value, speculative-grade bonds, bonds issued by smaller, less visible firms and bonds issued without protective covenants. Overall, we provide evidence that the geographical distribution of firms and investors generates a corresponding distribution of value-relevant, firm-level information that affects its cost of capital.
Read article
Corporate Culture and Firm Value: Evidence from Crisis
Yiwei Fang, Franco Fiordelisi, Iftekhar Hasan, Woon Sau Leung, Gabriel Wong
Journal of Banking and Finance,
January
2023
Abstract
Based on the Competing Values Framework (CVF), we score 10-K text to measure company culture in four types (collaborative, controlling, competitive, and creative) and examine its role in firm stability. We find that firms with higher controlling culture fared significantly better during the 2008–09 crisis. Firms with stronger controlling culture experienced fewer layoffs, less negative asset growth, greater debt issuance, and increased access to credit-line facilities during the crisis. The positive effect of the controlling culture is stronger among the financially-constrained firms. Overall, the controlling culture improves firm stability through greater support from capital providers.
Read article
Hedge Fund Activism and Internal Control Weaknesses
David Folsom, Iftekhar Hasan, Yinjie (Victor) Shen, Fuzhao Zhou
China Accounting and Finance Review,
No. 4,
2022
Abstract
Purpose: The aim of the paper is to investigate the associations between hedge fund activism and corporate internal control weaknesses.
Design/methodology/approach: In this paper, the authors identify hedge fund activism events using 13D filings and news search. After matching with internal control related information from Audit Analytics, the authors utilize ordinary least square (OLS) and propensity score matching (PSM) to analyze the data.
Findings: The authors find that after hedge fund activism, target firms report additional internal control weaknesses, and these identified internal control weaknesses are remediated in subsequent years, leading to better financial-reporting quality.
Originality/value: The findings indicate that both managers and activists have incentives to develop a stronger internal control environment after targeting.
Read article
