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The role of covenants in bond issue and investment policy. The case of Russian companies

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  • Flavio Bazzana
  • Anna Zadorozhnaya
  • Roberto Gabriele

Abstract

This study examines the use and determinants of covenants in public debt issued by Russian companies. On the basis of issue characteristics, firm characteristics and systemic risk variables, we investigate that the likelihood of including covenants clause in financial contracts is positively related to the riskiness of bond issues. Us- ing a hand-collected database of Russian firms that place bonds both in domestic and Eurobond market, we provide evidence that the covenant protection in Euro- bond market has a positive impact for those firms that issue in Russian market, with a reduction in covenant intensity. We document that a negative relation be- tween offering yield and the presence of covenants which is consistent with the costly contracting hypothesis (CCH) is registered only in Eurobond market. We al- so find a non linear relation between investment and covenant protection for the firm that issue in Russian market, indicating a possible optimal covenant protec- tion for a bond issue.

Suggested Citation

  • Flavio Bazzana & Anna Zadorozhnaya & Roberto Gabriele, 2014. "The role of covenants in bond issue and investment policy. The case of Russian companies," DEM Discussion Papers 2014/05, Department of Economics and Management.
    • Handle: RePEc:trn:utwpem:2014/05
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    Cited by:

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    2. Giuseppe Arbia & Marco Bee & Giuseppe Espa & Flavio Santi, 2014. "Fitting Spatial Econometric Models through the Unilateral Approximation," DEM Discussion Papers 2014/08, Department of Economics and Management.
    3. Mariasole Banno' & Elisa Pozza & Sandro Trento, 2015. "La famiglia fa male all'internazionalizzazione dell'impresa?," DEM Discussion Papers 2015/03, Department of Economics and Management.

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    More about this item

    Keywords

    covenants; bond; Russian companies;
    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
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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