This chapter investigates whether shareholders of firms that enter bond markets for the first time benefit from a reduction in free cash flows or suffer from controlling owners keeping a lock on control. We analyze an international sample of 225 bond initial public offerings (IPOs) from 37 countries. We find that announcement returns are higher for firms with higher free cash flows and lower for firms with controlling owners that have majority control. These effects depend on the level of legal shareholder protection. We find that the disciplinary power of public debt is more important in countries with strong shareholder protection. In countries with weak shareholder protection, the negative lock on control effect dominates.
Schramade, W. and Roosenboom, P. (2011), "Does Public Debt Discipline Managers and Controlling Owners?", John, K. and Makhija, A. (Ed.) International Corporate Governance (Advances in Financial Economics, Vol. 14), Emerald Group Publishing Limited, Bingley, pp. 43-63. https://doi.org/10.1108/S1569-3732(2011)0000014005Download as .RIS
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