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Debt enforcement and the cost of debt financing in M&As

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  • Liang, Qing
  • Li, Zhaohua

Abstract

We examine whether the debt enforcement affects the cost of debt securities in M&A transactions in 28 countries. Strong enforcement lowers the yield of securities. We show that legal enforcement affects the offering yield through the priority rule for creditors, which means senior debt creditors are paid in full first. The offering yield is higher for a security when a higher proportion of subordinated debts is used in an M&A transaction. However, strong enforcement improves a lender's chance of being paid back even for subordinated debt, so the offering yield is lower for subordinated debt in countries with better enforcement.

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  • Liang, Qing & Li, Zhaohua, 2022. "Debt enforcement and the cost of debt financing in M&As," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005584
    DOI: 10.1016/j.frl.2021.102620
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    1. Zhao, Wenjia & Liang, Yiyan & Li, Pan, 2023. "Can enterprises' participation in targeted poverty alleviation reduce the cost of debt financing? Evidence from China," Finance Research Letters, Elsevier, vol. 58(PC).

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    More about this item

    Keywords

    Legal enforcement; Offering yield; The priority rule;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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