Insider ownership, governance, and corporate bond pricing

Working paper
Corporate Governance & Sustainability

We investigate the effect of insider ownership on corporate bond yield spreads from 2003 to 2014 using a sample of 10,470 bonds issued by 1,222 non-financial firms from 48 countries. Greater insider ownership is associated with higher yield spreads. This positive relationship holds after controlling for measures of risk-taking, which suggests that bondholders price-protect against greater insider ownership for reasons beyond insiders’ heightened incentives to take risk. We consider consumption of private benefits as another economic channel through which insider ownership hurts bondholders. We show 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 present evidence that the probability of related-party transactions is larger in firms with more insider ownership.



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