Title

Takeover Exposure, Agency, and the Choice between Private and Public Debt

Document Type

Article

Language

eng

Format of Original

32 p.

Publication Date

Summer 2009

Publisher

Wiley

Source Publication

Journal of Financial Research

Source ISSN

0270-2592

Abstract

We examine how governance characteristics are related to the corporate choice between public and private debt. We find that firms with fewer takeover defenses and larger outside blockholder ownership are more likely to borrow from banks and to issue 144A debt.We also document that public debt cost is more sensitive to takeover exposure than bank debt cost. These results are consistent with the hypothesis that banks mitigate the expected negative effect of takeovers on debt value through covenants and debt renegotiations. Moreover, we show that firms with weaker internal monitoring are less likely to borrow from banks.

Comments

Journal of Financial Research, Vol. 32, No. 2 (Summer 2009): 199-230. DOI.