Managerial ability,information quality,and the design and pricing of corporate debt |
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Authors: | Alex Petkevich Andrew Prevost |
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Affiliation: | 1.John and Lillian Neff Department of Finance, University of Toledo,Toledo,USA;2.University of Vermont,Burlington,USA |
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Abstract: | We examine if managerial ability affects the efficiency of the contracting environment with lenders. We find that higher ability alters the balance of information-sensitive covenants demanded by outside investors, increases the issuance of bonds with longer maturity, and decreases the issuance of senior secured debt. We also document higher ability reduces the risk premium demanded by investors on information-sensitive debt. These results are collectively consistent with the premise that the mitigation of information risk is an important dimension of managerial ability that has a direct bearing on the structure and pricing of corporate debt. |
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