Bond Market Entry Around the World: Does Public Debt Discipline Managers?
46 Pages Posted: 25 Aug 2005
Date Written: June 27, 2006
This paper documents the impact of bond IPOs on the agency costs of equity. We find that bond market entry is received unfavorably when the debt issue is motivated by keeping a lock on control. Conversely, when discipline is expected to increase due to bond market entry (high free cash flow, low dividends), stock price reactions are more positive. Moreover, the strength of these relations is affected by worldwide differences in shareholder protection. Free cash flow has a larger impact when investor protection is stronger, whereas dividends and control locks are more important when shareholder protection is poor.
Keywords: Ownership structure, Initial Public Offerings (IPOs), Debt
JEL Classification: G32, G34, G35
Suggested Citation: Suggested Citation