Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 20, 2023 erstellt
Beschreibung:
This paper documents the rise of “poison bonds”, which are corporate bonds with a covenant that allows bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% after 2005. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as a substitute. This practice destroys shareholder value, as holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of −7.3% per year. Further analyses support the notion that managers use poison bonds to entrench themselves, which shed new light on the agency costs of debt