The effect of state antitakeover laws on the firm's bondholders

Francis, Bill B.; Hasan, Iftekhar; John, Kose; Waisman, Maya

doi:10.1016/j.jfineco.2009.12.006

Cited by 110 publications

(28 citation statements)

References 59 publications

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“…Table 2 lists the number of state antitakeover statutes adopted by each state and the number of sample firms incorporated in each state. Approximately 56% of the sample firms are incorporated in Delaware, which is comparable with prior studies (e.g., Bertrand and Mullainathan (2003), Cheng et al (2005), and Francis et al (2010)). Among the 34 states in our sample, only 4 states did not pass an antitakeover statute during the sample period.…”

Section: Voluntary Disclosuresupporting

confidence: 83%

“…Since firms incorporated in certain states, such as Pennsylvania, are able to opt out of some of the antitakeover laws, we follow Wald and Long (2007) and use the RiskMetrics database to adjust each firm's index value by the firm's opt-out decision. Bebchuk and Cohen's (2003) antitakeover index and its variants have been widely used as proxies for the impact of the state-level legal protection on takeover vulnerability in recent studies (e.g., Wald and Long (2007), Qi and Wald (2008), Francis, Hasan, John, and Waisman (2010), and Mansi et al (2010)).…”

Section: B State Antitakeover Statutesmentioning

confidence: 99%

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State Antitakeover Laws and Voluntary Disclosure

Zhao

Allen

Hasan

2013

J. Financ. Quant. Anal.

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We test the relationship between takeover protection and voluntary disclosure in a setting of antitakeover laws in a firm’s state of incorporation. After correcting for the endogeneity of firms’ incorporation choices, we find that firms incorporated in states with more antitakeover laws have higher levels of voluntary disclosure and stock market liquidity. Further tests do not support shareholder demands being the driving force for this association. Our findings are consistent with takeover protection and poor disclosure serving as substitute mechanisms for deterring takeovers. Therefore, as antitakeover statutes mitigate takeover threats, they enhance managers’ incentives to disclose more in order to realize capital market benefits.

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Section: Voluntary Disclosuresupporting

confidence: 83%

Section: B State Antitakeover Statutesmentioning

confidence: 99%

State Antitakeover Laws and Voluntary Disclosure

Zhao

Allen

Hasan

2013

J. Financ. Quant. Anal.

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“…Admittedly, the potential effect of these laws was not limited to LBOs but also to other takeover events and, therefore, their results, although informative, have to be interpreted with caution in the context of LBO risk. Qiu and Yu (2009) find that bond spreads increase in the year the law is enacted while Francis et al (2010) find that bond spreads decrease in the month around the first press announcement that is related to the expected passage of these laws.…”

Section: Introductionmentioning

confidence: 99%

“…On the other hand, the threat of a future LBO may reduce agency costs by disciplining managers (Jensen and Meckling, 1976, Jensen, 1986and Innes, 1990, an effect we call the "disciplining effect". The disciplining effect of LBOs can naturally be viewed as reducing credit spreads (Qiu andYu, 2009 andFrancis, Hasan, John, andWaisman, 2010), but may also lead to an increase in credit spreads if managers pursue more profitable but riskier projects, beneficial for equity holders but detrimental to bondholders (Roades and Rutz, 1982).…”

Section: Introductionmentioning

confidence: 99%

“…Employing a different approach, Qiu and Yu (2009) and Francis et al (2010) measure bond spread changes around laws enacted in 30 U.S. states between 1985-1991 raising the cost of takeovers and arguably decreasing the likelihood of an LBO. Admittedly, the potential effect of these laws was not limited to LBOs but also to other takeover events and, therefore, their results, although informative, have to be interpreted with caution in the context of LBO risk.…”

Section: Introductionmentioning

confidence: 99%

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Leveraged buyouts and bond credit spreads

Eisenthal-Berkovitz

Feldhütter

Vig

2020

Journal of Financial Economics

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Recent decades have witnessed several waves of buyout activity. We find LBOs to be a significant concern for bondholders by showing that a) intra-industry credit spreads increase upon an LBO announcement, b) yields on bonds without event risk covenants are, on average, 21bps higher than those on same-firm bonds with such covenants and c) structural models calibrated to historical LBO events imply an impact of 18-21bps on 10-year credit spreads. The impact is strongest in expansion periods and for bonds with maturities of 10-20 years.

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Do Religious Norms Influence Corporate Debt Financing?

Cai

Shi

2017

J Bus Ethics

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Hilary and Hui (2009) argue that the prevailing social norms, such as religious beliefs, affect not only individual decisions but also corporate decisions. They document that companies headquartered in more religious areas tend to make more conservative investment decisions and have lower-risk exposures. McGuire et al. (2012) find that firms headquartered in areas with stronger religious social norms tend to have fewer financial reporting irregularities. Callen and Fang (2015) document a negative relation between the religiosity at a firm's headquarters and its stock price crash risk. In addition, religion is shown to be associated with reduced risk taking by fund managers (Shu et al. 2012;Gao et al. 2015), banks (Adhikari and Agrawal 2016b), and entrepreneurs (Jiang et al. 2015).In this study, we examine whether a religious environment influences a firm's capital structure and the contracting between shareholders and creditors. Theoretically, local religiosity may affect a firm's debt financing and contracts through three channels. First, debt borrowing is often viewed in a negative light by religious teaching. In the Bible, financial debt is described as a form of bondage (Proverb 22:7) and a curse for disobeying God (Deuteronomy 28:43-45). 2 Borrowing beyond one's means and the subsequent inability to repay the debt are even deemed "wicked" (Psalm 37:21). The cancelation of debt in the Jubilee years, however, is blessed in the Bible (Deuteronomy 15:1-4). Lending is also described as a blessing from God (Deuteronomy 15:6). In Islam, any interest-bearing debt is viewed as usury and is Abstract Previous studies substantiate that religious social norms influence individual and organizational decisions. Using debt financing settings, we examine whether a firm's religious environment influences outside parties' perceptions in contracting with the firm. We document that firms located in the more religious areas use less debt financing and receive better credit ratings. Bond investors require lower yields and impose fewer covenants on such firms. Using the 2002 revelation of sex abuse by Catholic priests as an exogenous shock, we verify that these findings are not driven by endogeneity issues. Our study highlights the role of social norms in financial transactions.

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The effect of state antitakeover laws on the firm's bondholders

Cited by 110 publications

References 59 publications

State Antitakeover Laws and Voluntary Disclosure

State Antitakeover Laws and Voluntary Disclosure

Leveraged buyouts and bond credit spreads

Do Religious Norms Influence Corporate Debt Financing?

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