The value of creditor control in corporate bonds

Feldhütter, P, Hotchkiss, E and Karakaş, O (2016) The value of creditor control in corporate bonds. Journal of Financial Economics, 121 (1). pp. 1-27. ISSN 0304-405X


This paper introduces a measure that captures the premium in bond prices that is due to the value of creditor control. We estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swap (CDS) contracts. We find empirically that this premium increases as firm credit quality decreases and around important credit events such as defaults, bankruptcies, and covenant violations. The increase is greatest for bonds most pivotal to changes in control. Changes in bond and CDS liquidity do not appear to drive increases in the premium.

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Item Type: Article
Subject Areas: Finance
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© 2016 Elsevier

Date Deposited: 17 Nov 2016 13:08
Subjects: Control
Corporate bonds
Last Modified: 28 May 2024 01:28

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