Speaker：Dr. Shuo Xia

Title：Poison Bonds

Schedule: Nov 1, Wed 1:30-3:00 PM

Location: 诚明楼 (Chengming Hall）RM 315

 

Introduction: 夏烁，哈勒经济研究所 (IWH) 研究员，莱比锡大学经济与管理学院助理教授，鹿特丹伊拉斯姆斯大学金融学博士。目前主要研究领域为公司金融与公司治理。研究成果发表于Journal of Finance, Journal of Financial and Quantitative Analysis.

 

Abstract: This paper documents the rise of “poison bonds”, which are corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% after 2005. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Further analyses suggest that this practice entrenches incumbent managers, coincidentally benefits bondholders, but destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of −7.3% per year. Our findings have important implications for understanding the agency benefits and costs of debt: (1) more debt does not necessarily discipline the management; and (2) even without financial distress, managerial entrenchment can lead to conflicts between shareholders and creditors.