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What Does Nasdaq's High Yield Bond Market Reveal about Bondholder-Shareholder Conflict?

Author

Listed:
  • Gordon J. Alexander
  • Amy K. Edwards
  • Michael G. Ferri

Abstract

We use data from Nasdaq’s FIPS system for reporting transactions in selected high-yield corporate bonds to investigate the relationship between the returns on a firm’s stock and the returns on its publicly traded, high-yield debt. Regression models and analysis of the behavior of the returns around events associated with agency conflict show that the returns follow complex patterns of similarity and divergence. Positive co-movement is the dominant form of the relationship, but opposite movement of the bond and stock returns around those events indicates agency conflicts between bondholders and stockholders.We use data from Nasdaq’s FIPS system for reporting transactions in selected high-yield corporate bonds to investigate the relationship between the returns on a firm’s stock and the returns on its publicly traded, high-yield debt. Regression models and analysis of the behavior of the returns around events associated with agency conflict show that the returns follow complex patterns of similarity and divergence. Positive co-movement is the dominant form of the relationship, but opposite movement of the bond and stock returns around those events indicates agency conflicts between bondholders and stockholders.

Suggested Citation

  • Gordon J. Alexander & Amy K. Edwards & Michael G. Ferri, 2000. "What Does Nasdaq's High Yield Bond Market Reveal about Bondholder-Shareholder Conflict?," Financial Management, Financial Management Association, vol. 29(1), Spring.
    • Handle: RePEc:fma:fmanag:alexander0
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    Cited by:

    1. Norden, Lars & Weber, Martin, 2004. "The comovement of credit default swap, bond and stock markets: An empirical analysis," CFS Working Paper Series 2004/20, Center for Financial Studies (CFS).
    2. Thomas Chiang & Jiandong Li & Sheng-Yung Yang, 2015. "Dynamic stock–bond return correlations and financial market uncertainty," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 59-88, July.
    3. Brière, Marie & Chapelle, Ariane & Szafarz, Ariane, 2012. "No contagion, only globalization and flight to quality," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1729-1744.
    4. repec:dau:papers:123456789/7748 is not listed on IDEAS
    5. John C. Banko & Lei Zhou, 2010. "Callable Bonds Revisited," Financial Management, Financial Management Association International, vol. 39(2), pages 613-641, June.
    6. Hassan, M. Kabir & Ngene, Geoffrey M. & Yu, Jung-Suk, 2015. "Credit default swaps and sovereign debt markets," Economic Systems, Elsevier, vol. 39(2), pages 240-252.
    7. repec:dau:papers:123456789/7746 is not listed on IDEAS
    8. Tsai, Hui-Ju, 2014. "The informational efficiency of bonds and stocks: The role of institutional sized bond trades," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 34-45.
    9. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
    10. Venus Khim-Sen Liew & Zhuo Qiao & Wing-keung Wong, 2010. "Linearity and stationarity of G7 government bond returns," Economics Bulletin, AccessEcon, vol. 30(4), pages 2642-2655.
    11. Kalimipalli, Madhu & Nayak, Subhankar & Perez, M. Fabricio, 2013. "Dynamic effects of idiosyncratic volatility and liquidity on corporate bond spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2969-2990.
    12. Klaus-Michael Menz, 2010. "Corporate Social Responsibility: Is it Rewarded by the Corporate Bond Market? A Critical Note," Journal of Business Ethics, Springer, vol. 96(1), pages 117-134, September.
    13. Xiaoting Wei & Cameron Truong & Viet Do, 2020. "When are dividend increases bad for corporate bonds?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1295-1326, June.
    14. Lars Norden & Martin Weber, 2009. "The Co†movement of Credit Default Swap, Bond and Stock Markets: an Empirical Analysis," European Financial Management, European Financial Management Association, vol. 15(3), pages 529-562, June.

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