We study the impact of stronger shareholder control on bondholders. We find that the passage of shareholder-sponsored governance proposals causes a decline in CDS spreads, indicating a net positive effect on bondholders. Evidence suggests that the direct benefit of stronger shareholder control, through “management disciplining” channel, is larger than the combined adverse effects of directly escalating shareholder-bondholder conflict and indirectly exacerbating exposure to shareholder opportunism. Results are stronger for firms with existing high levels of shareholder-bondholder conflict and for proposals that mitigate managerial entrenchment without exacerbating risk-shifting. Finally, stronger shareholder control improves credit ratings and operating performance in the long-term.
Amiri-Moghadam, Sadra; Javadi, Siamak; and Rastad, Mahdi, "The Impact of Stronger Shareholder Control on Bondholders" (2020). Economics and Finance Faculty Publications and Presentations. 60.
Journal of Financial and Quantitative Analysis