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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27089
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| Title: | Investment Opportunities and the Design of Debt Securities |
| Authors: | Kahan, Marcel
Yermack, David |
| Issue Date: | Aug-1996 |
| Series/Report no.: | FIN-96-031 |
| Abstract: | We investigate a puzzling empirical regularity: the near-total absence
of restrictive covenants from convertible bonds issued by U.S.
companies. In a study of 192 recent debt issues, we find that an
issuer’s investment opportunities are negatively related to the
presence of covenants and positively associated with the incidence of
convertibility. The results support an interpretation that covenants
impose costs by limiting managers’ choices, leading firms that
value managerial flexibility to prefer convertibility as a method of
reducing the agency costs of debt. |
| URI: | http://hdl.handle.net/2451/27089 |
| Appears in Collections: | Finance Working Papers
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