Callable or convertible debt? The role of debt overhang and covenants

We analyze what role debt overhang and covenants have in a manager’s choice between issuing callable or convertible debt when a firm needs to issue a substantial amount of debt. Callable bonds provide a higher coupon in exchange for a repurchase option. Convertible bonds offer bondholders the option to exchange debt to equity. Using a dynamic capital structure model with investment choice, we find that callable debt implies a larger debt overhang friction, and for highly leveraged firms convertible debt is preferred. Moreover, if outstanding bonds have net-worth covenants attached, callable bonds are more likely to be issued. Our empirical findings support the theory.     

提高直接融资比重有助于提升企业价值吗?——基于短债长投的分析视角

采用中国地级城市2002-2022年面板数据和上市企业微观数据,研究城市直接融资比重对企业价值的影响。研究结果表明:(1)提高城市直接融资比重有助于提升企业价值;(2)提高城市直接融资比重通过降低企业“短债长投”水平提升企业价值;(3)对于资本市场信息不对称程度高和产品市场竞争程度高的企业中,提高城市直接融资比重能够更显著地改善企业融资行为,提升企业价值。研究结果为从区域金融结构角度理解企业融资行为与价值提升提供了微观证据;为企业降杠杆的有效环境提供了实证证据;为深化资本市场改革、改善企业融资环境、转变企业经营行为,从而促进企业长期价值增值提供了政策启示。     

PCAOB international inspection access and debt contracting: Evidence from American Depositary Receipt firms

We examine whether the Public Company Accounting Oversight Board’s (PCAOB’s) international inspection access affects the usage of accounting-based debt covenants in bank loan contracts of American Depositary Receipt (ADR) borrowers. We show that there is an increase in the use of financial covenants in debt contracts after the auditor of an ADR borrower becomes subject to PCAOB inspections. We also document that lenders increase the usage of financial covenants only in loans to ADR borrowers domiciled in countries with weak home country intuitions, and the increase is more pronounced for ADR borrowers from countries without a local auditor regulatory oversight body. These findings suggest that PCAOB regulatory oversight enhances the perceived credibility of accounting numbers for debt contracting and serves as a substitute for the weak monitoring of auditors for ADR borrowers domiciled in countries with weak country institutions.