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Bond covenants and institutional blockholding

Author

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  • Zhang, Xinde
  • Zhou, Simiao
Abstract
We document a significant and positive relation between institutional block ownership and the number of bond covenants. This finding is robust to different measures of blockholding, alternative regression models, and endogeneity considerations. The positive association between blockholding and covenants is stronger for active as well as for short-term blockholders, suggesting that covenants are employed ex ante to mitigate incentive conflicts between shareholders and bondholders. While both covenants and blockholding are positively related to borrowing costs, their interaction implies that covenants attenuate the increase in borrowing costs resulting from more concentrated block ownership.

Suggested Citation

  • Zhang, Xinde & Zhou, Simiao, 2018. "Bond covenants and institutional blockholding," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 136-152.
    • Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:136-152
    DOI: 10.1016/j.jbankfin.2018.09.006
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    Cited by:

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    3. Lin, Steve & Sawani, Assma & Wang, Changjiang, 2023. "Managerial stock ownership, debt covenants, and the cost of debt," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
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    5. Dawood Ashraf & Mohsin Khawaja & M. Ishaq Bhatti, 2022. "Raising capital amid economic policy uncertainty: an empirical investigation," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-32, December.
    6. Cao, Mengyi & Xia, Qing, 2021. "Trust and use of covenants," Research in International Business and Finance, Elsevier, vol. 57(C).
    7. Cline, Brandon N. & Fu, Xudong & Tang, Tian, 2020. "Shareholder investment horizons and bank debt financing," Journal of Banking & Finance, Elsevier, vol. 110(C).
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    9. Zhang, Chunqiang & Gao, Lu & Gao, Xi & Chan, Kam C., 2022. "Do underwriters with foreign shareholders help protect bond investors? Evidence from bond covenants in China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    10. Dutordoir, Marie & Pappas, Kostas & Xu, Alice Liang & Zeng, Cheng (Colin), 2023. "Covenants in convertible bonds: Boon or boilerplate?," Journal of Corporate Finance, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Institutional blockholding; Bond covenants; Bondholder–Shareholder conflicts;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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