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The Impact of Stronger Shareholder Control on Bondholders

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  • Amiri-Moghadam, Sadra
  • Javadi, Siamak
  • Rastad, Mahdi

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 credit default swap spreads, indicating a net positive effect on bondholders. Evidence suggests that the direct benefit of stronger shareholder control, through the “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.

Suggested Citation

  • Amiri-Moghadam, Sadra & Javadi, Siamak & Rastad, Mahdi, 2021. "The Impact of Stronger Shareholder Control on Bondholders," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(4), pages 1259-1295, June.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:4:p:1259-1295_5
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    Cited by:

    1. Paul Brockman & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Ying Zheng, 2024. "Do foreign institutional shareholders affect international debt contracting? Evidence from Yankee bond covenants," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(5), pages 551-576, July.
    2. Andres, Christian & Betzer, André & Doumet, Markus, 2021. "Measuring changes in credit risk: The case of CDS event studies," Global Finance Journal, Elsevier, vol. 49(C).
    3. Dang, Man & Puwanenthiren, Premkanth & Jones, Edward & Nguyen, Thieu Quang & Vo, Xuan Vinh & Nadarajah, Sivathaasan, 2022. "Strategic archetypes, credit ratings, and cost of debt," Economic Modelling, Elsevier, vol. 114(C).

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