Document Type

Article

Publication Date

2020

Abstract

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.

Comments

© 2020 Michael G. Foster School of Business Administration, University of Washington. Original published version available at https://doi.org/10.1017/S002210902000040X

Publication Title

Journal of Financial and Quantitative Analysis

DOI

10.1017/S002210902000040X

Included in

Finance Commons

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