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Management efficiency uncertainty and its implications for bondholders

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  • Chen, Tsung-Kang
  • Tseng, Yijie
  • Hung, Yu-Shun
  • Huang, Mei-Ling

Abstract

We empirically examine whether and how management efficiency uncertainty (MEU) affects the loss risks of bondholders with a theoretical application model. We find that a greater MEU increases the loss risks of bondholders by increasing a firm's assessed asset value volatility and incomplete information while management efficiency has the opposite effect by increasing the firm's profitability and decreasing financial leverage. Moreover, the MEU effect becomes weaker for firms with greater profitability. Finally, we further find that managers' state-contingent payoffs increase MEU and thus the loss risks of bondholders.

Suggested Citation

  • Chen, Tsung-Kang & Tseng, Yijie & Hung, Yu-Shun & Huang, Mei-Ling, 2023. "Management efficiency uncertainty and its implications for bondholders," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 73-92.
    • Handle: RePEc:eee:reveco:v:85:y:2023:i:c:p:73-92
    DOI: 10.1016/j.iref.2022.12.002
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    More about this item

    Keywords

    Management efficiency uncertainty; Bond yield spread; Credit risk; Structural credit risk model;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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