Bond Covenants and the Cost of Debt: Evidence from China. Issue 3 (4th March 2017)

• Record Type: Journal Article
• Authors: Gong, Guangming; Xu, Si; Gong, Xun
• Is Part Of: Emerging markets finance & trade. Volume 53:Issue 3(2017)
• Page Start: 587
• Page End: 610
• Publication Date: 2017-03-04
• Subjects: accounting quality -- agency conflicts -- bond covenants -- bond yield spread; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2015.1095568
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: We examine how the use of covenants in the bond contract affects the cost of debt by using a sample of Chinese firms. We find that (1) the use of financing-related and asset-sale covenants is negatively associated with the cost of debt; (2) the negative relations between financing-related and asset-sale covenants and the cost of debt are more pronounced when a firm's agency conflict is severe or accounting quality is high; (3) the negative relations between financing-related and asset-sale covenants and the cost of debt are significantly intensified if the issuer is a state-owned enterprise (SOE).