Creditor protection laws and the cost of debt by Sattar A. Mansi, William F. Maxwell and John K. Wald

By:

Mansi, Sattar A [author]

Contributor(s):

Material type: Text

TextSeries: Journal of law and economics ; Volume 52, number 4Chicago: University of Chicago Press; 2009Content type:

text

Media type:

unmediated

Carrier type:

volume

ISSN:

00222186

Subject(s):

LOC classification:

HB73 JOU

Online resources:

Click here to access online

Summary: We examine the impact of state payout restrictions on firms' credit ratings and bond yields. Using publicly traded bond data for a sample of large firms, we find that firms incorporated in states with more restrictive payout statutes (for example, New York and California) have better credit ratings and significantly lower yield spreads (about 8.7 percent) than do firms incorporated in less restrictive states (for example, Delaware). These results suggest that incorporation in a more restrictive state provides a credible commitment mechanism for avoiding some of the moral hazard problems associated with long‐term debt. This commitment corresponds to an economically and statistically significant difference in market yields and firm‐financing costs and is robust to controls for ownership, governance, debt type, Delaware or non‐Delaware incorporation, and covenant usage. Overall, our results are consistent with the notion that Delaware incorporation has hidden costs for some firms

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Holdings
Item type	Current library	Call number	Vol info	Copy number	Status	Notes	Date due	Barcode
Journal Article	Main Library - Special Collections	HB73 JOU (Browse shelf(Opens below))	Vol. 52, no.3 (pages 701-726)	SP4268	Not for loan	For in house only

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We examine the impact of state payout restrictions on firms' credit ratings and bond yields. Using publicly traded bond data for a sample of large firms, we find that firms incorporated in states with more restrictive payout statutes (for example, New York and California) have better credit ratings and significantly lower yield spreads (about 8.7 percent) than do firms incorporated in less restrictive states (for example, Delaware). These results suggest that incorporation in a more restrictive state provides a credible commitment mechanism for avoiding some of the moral hazard problems associated with long‐term debt. This commitment corresponds to an economically and statistically significant difference in market yields and firm‐financing costs and is robust to controls for ownership, governance, debt type, Delaware or non‐Delaware incorporation, and covenant usage. Overall, our results are consistent with the notion that Delaware incorporation has hidden costs for some firms

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