Insider ownership, governance mechanisms, and corporate bond pricing around the world

Rob Bauer; Jeroen Derwall; Nora Pankratz

doi:10.1016/j.jimonfin.2021.102423

Insider ownership, governance mechanisms, and corporate bond pricing around the world

Rob Bauer, Jeroen Derwall, Nora Pankratz

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

We investigate the effect of insider ownership on corporate bond yield spreads from 2003 to 2014 using a sample of 10,460 bonds issued by 1,222 non-financial firms from 44 countries. Using this sample, we find on average that greater insider ownership is associated with a higher yield spread. We consider consumption of private benefits as an economic channel through which insider ownership hurts bondholders. Using a global index of shareholder rights, we observe that the positive association between insider ownership and the spread decreases for firms with relatively stronger shareholder rights in which consumption of private benefits is less likely to occur. Furthermore, we report that in firms with more insider ownership the probability of related-party transactions is larger whereas their accounting return on assets is weaker, ceteris paribus. Taken together, the results indicate that bondholders anticipate that greater insider ownership facilitates consumption of private benefits, with implications for the valuation of corporate debt.

Original language	English
Article number	102423
Number of pages	20
Journal	Journal of International Money and Finance
Volume	117
DOIs	https://doi.org/10.1016/j.jimonfin.2021.102423
Publication status	Published - Oct 2021

Bibliographical note

Funding Information:
We thank GMI Ratings for data support as well as an anonymous reviewer, (seminar) participants at Maastricht University, UBS, NN Investment Partners, the French Finance Association Annual Meeting, the oikos Young Scholars Finance Academy at the University of Reading, the KU Leuven Corporate Finance Day, and the Ph.D. Poster Session of the 2017 AFA Annual Meeting for valuable feedback. GMI Ratings has since been acquired by MSCI Inc. and is now part of MSCI ESG Research.

Publisher Copyright:
© 2021 Elsevier Ltd

Keywords

Corporate bonds
Insider ownership
Tunnelling

Access to Document

10.1016/j.jimonfin.2021.102423

1-s2.0-S0261560621000747-mainFinal published version, 387 KBLicence: Taverne

Cite this

@article{67e58a8be547480aaa8bf3509b9178ef,

title = "Insider ownership, governance mechanisms, and corporate bond pricing around the world",

abstract = "We investigate the effect of insider ownership on corporate bond yield spreads from 2003 to 2014 using a sample of 10,460 bonds issued by 1,222 non-financial firms from 44 countries. Using this sample, we find on average that greater insider ownership is associated with a higher yield spread. We consider consumption of private benefits as an economic channel through which insider ownership hurts bondholders. Using a global index of shareholder rights, we observe that the positive association between insider ownership and the spread decreases for firms with relatively stronger shareholder rights in which consumption of private benefits is less likely to occur. Furthermore, we report that in firms with more insider ownership the probability of related-party transactions is larger whereas their accounting return on assets is weaker, ceteris paribus. Taken together, the results indicate that bondholders anticipate that greater insider ownership facilitates consumption of private benefits, with implications for the valuation of corporate debt.",

keywords = "Corporate bonds, Insider ownership, Tunnelling",

author = "Rob Bauer and Jeroen Derwall and Nora Pankratz",

note = "Funding Information: We thank GMI Ratings for data support as well as an anonymous reviewer, (seminar) participants at Maastricht University, UBS, NN Investment Partners, the French Finance Association Annual Meeting, the oikos Young Scholars Finance Academy at the University of Reading, the KU Leuven Corporate Finance Day, and the Ph.D. Poster Session of the 2017 AFA Annual Meeting for valuable feedback. GMI Ratings has since been acquired by MSCI Inc. and is now part of MSCI ESG Research. Publisher Copyright: {\textcopyright} 2021 Elsevier Ltd",

year = "2021",

month = oct,

doi = "10.1016/j.jimonfin.2021.102423",

language = "English",

volume = "117",

journal = "Journal of International Money and Finance",

issn = "0261-5606",

publisher = "Elsevier BV",

}

TY - JOUR

T1 - Insider ownership, governance mechanisms, and corporate bond pricing around the world

AU - Bauer, Rob

AU - Derwall, Jeroen

AU - Pankratz, Nora

N1 - Funding Information: We thank GMI Ratings for data support as well as an anonymous reviewer, (seminar) participants at Maastricht University, UBS, NN Investment Partners, the French Finance Association Annual Meeting, the oikos Young Scholars Finance Academy at the University of Reading, the KU Leuven Corporate Finance Day, and the Ph.D. Poster Session of the 2017 AFA Annual Meeting for valuable feedback. GMI Ratings has since been acquired by MSCI Inc. and is now part of MSCI ESG Research. Publisher Copyright: © 2021 Elsevier Ltd

PY - 2021/10

Y1 - 2021/10

N2 - We investigate the effect of insider ownership on corporate bond yield spreads from 2003 to 2014 using a sample of 10,460 bonds issued by 1,222 non-financial firms from 44 countries. Using this sample, we find on average that greater insider ownership is associated with a higher yield spread. We consider consumption of private benefits as an economic channel through which insider ownership hurts bondholders. Using a global index of shareholder rights, we observe that the positive association between insider ownership and the spread decreases for firms with relatively stronger shareholder rights in which consumption of private benefits is less likely to occur. Furthermore, we report that in firms with more insider ownership the probability of related-party transactions is larger whereas their accounting return on assets is weaker, ceteris paribus. Taken together, the results indicate that bondholders anticipate that greater insider ownership facilitates consumption of private benefits, with implications for the valuation of corporate debt.

AB - We investigate the effect of insider ownership on corporate bond yield spreads from 2003 to 2014 using a sample of 10,460 bonds issued by 1,222 non-financial firms from 44 countries. Using this sample, we find on average that greater insider ownership is associated with a higher yield spread. We consider consumption of private benefits as an economic channel through which insider ownership hurts bondholders. Using a global index of shareholder rights, we observe that the positive association between insider ownership and the spread decreases for firms with relatively stronger shareholder rights in which consumption of private benefits is less likely to occur. Furthermore, we report that in firms with more insider ownership the probability of related-party transactions is larger whereas their accounting return on assets is weaker, ceteris paribus. Taken together, the results indicate that bondholders anticipate that greater insider ownership facilitates consumption of private benefits, with implications for the valuation of corporate debt.

KW - Corporate bonds

KW - Insider ownership

KW - Tunnelling

UR - http://www.scopus.com/inward/record.url?scp=85111043017&partnerID=8YFLogxK

U2 - 10.1016/j.jimonfin.2021.102423

DO - 10.1016/j.jimonfin.2021.102423

M3 - Article

SN - 0261-5606

VL - 117

JO - Journal of International Money and Finance

JF - Journal of International Money and Finance

M1 - 102423

ER -

Insider ownership, governance mechanisms, and corporate bond pricing around the world

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Fingerprint

Cite this