Credit risk and governance: evidence from credit default swap spreads

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Akdoğu, Evrim and Alp, Aysun (2016) Credit risk and governance: evidence from credit default swap spreads. Finance Research Letters, 17 . pp. 211-217. ISSN 1544-6123 (Print) 1544-6131 (Online)

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Official URL: http://dx.doi.org/10.1016/j.frl.2016.03.014


In this paper, we examine the effect of shareholder governance mechanisms on the firms' credit risk through credit default swap spreads. Our results suggest that higher and takeover provisions decrease the price of debt. We find that on average, addition of one antitakeover provision lowers the CDS spread by 3.46 basis points. In addition, we find that this effect is more pronounced for smaller, highly levered, low-rated, and less profitable firms. Since these firms arguably carry a higher financial distress risk, it appears that bondholders favor weaker shareholder governance when the conflict of interest between the shareholders and the bondholders peak.

Item Type:Article
Uncontrolled Keywords:Corporate governance; Credit risk; Credit default swap spreads; Cost of debt; G-index
Subjects:H Social Sciences > HG Finance > HG4001-4285 Financial management. Business finance. Corporation finance
ID Code:29900
Deposited By:Aysun Alp
Deposited On:10 Nov 2016 10:12
Last Modified:10 Nov 2016 10:12

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