Finance Seminar with Karin Thorburn, NHH Norwegian School of Economics
The Department of Finance is proud to announce the upcoming seminar with Karin Thorburn, NHH Norwegian School of Economics and Wharton School of University of Pennsylvania.
Karin Thorburn will present: Covenant removal in corporate bonds.
Corporate bonds include action-limiting covenants that may prevent the firm from undertaking valuable growth opportunities but are difficult to renegotiate. We study the covenant defeasance option, which effectively mitigates this ex-post inefficiency by allowing the firm to remove covenants. Our model predicts, and our empirical analysis confirms, that (1) financially constrained firms with high uncertainty are more likely to include this option; (2) with the defeasance option, issuers are willing to accept more action-limiting covenants ex ante; and (3) investors require lower yield on non-callable bonds and higher yield on standard callable bonds that are defeasible.
Solbjerg Plads 3