• search hit 1 of 1
Back to Result List

Delegated monitoring

  • To highlight the value of delegated monitoring through bond trustees, we examine the high-yield corporate bond market where default risk is high, covenants are numerous, and market values are particularly sensitive to wealth transfers. We show that bond trustees that also act as underwriters in the low-grade bond segment, but not the market’s largest trustees, reduce firms’ at-issue bond yields by 33 to 40 basis points. Accordingly, we report significantly lower bond default and downgrade risks associated with superior monitoring by these trustees. These pricing effects remain when we control for self-selection and do not hinge on whether we solely consider trustee identity or interaction terms of trustees with covenant variables that measure necessary monitoring effort. Our results can be interpreted as evidence for informational and reputational spillover effects of banks providing several services in the high-yield market segment.

Download full text files

Export metadata

Additional Services

Search Google Scholar Statistics
Metadaten
Author:Christian AndresORCiD, André Betzer, Peter Limbach
Subtitle (English):the effectiveness and pricing of bond indenture trustees
Place of publication:Mannheim
Document Type:Working Paper
Language:English
Date of Publication (online):2018/01/17
Date of first Publication:2012/02/01
Release Date:2018/01/17
Tag:Aufsichtsorgan; Ausfallrisiko; Eigeninteresse; Informationsweitergabe; Leihgebühren; Vertrag
Bond Trustee; Borrowing costs; Covenant; Default risk; Delegated monitoring; Information spillover; Skin in the game
Page Number:36
Institutes:WHU Finance & Accounting Group / Chair of Empirical Corporate Finance
JEL-Classification:G Financial Economics / G2 Financial Institutions and Services / G21 Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G Financial Economics / G2 Financial Institutions and Services / G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies (Updated!)
G Financial Economics / G3 Corporate Finance and Governance / G30 General
Licence (German):Copyright for this publication