Debt covenants and credit spread valuation: The special case of Chinese global bonds

Journal article


Chang, Sean Tat and Ross, Donald. (2016). Debt covenants and credit spread valuation: The special case of Chinese global bonds. Global Finance Journal. 30, pp. 27 - 44. https://doi.org/10.1016/j.gfj.2016.05.004
AuthorsChang, Sean Tat and Ross, Donald
Abstract

Bond covenants protect against risk factors in Chinese global bonds. This paper examines the impact of bond covenants on credit spread valuation and the configural cue processing of analysts in the aftermath of the Global Financial Crisis at the beginning of the 2011 China economic slowdown. We used a mixed methods approach that incorporates surveys and interviews to collect data from bank and investment analysts representative of the market. The results reveal important and statistically significant relationships between Chinese global bond valuation and covenant protection against 1) information asymmetry; 2) the agency problem; 3) financial distress and 4) bankruptcy. Covenant protection against bankruptcy is identified as the most significant factor in main effects and two-factor interactive effects. This is followed by a moderate influence on bond valuation from covenant protection against agency problems, financial distress and information asymmetry risks.

Keywordscorporate bond; debt covenants; bond valuation; bond pricing; credit spread valuation; risk pricing
Year2016
JournalGlobal Finance Journal
Journal citation30, pp. 27 - 44
PublisherElsevier
ISSN1044-0283
Digital Object Identifier (DOI)https://doi.org/10.1016/j.gfj.2016.05.004
Scopus EID2-s2.0-84975528859
Page range27 - 44
Research GroupPeter Faber Business School
Publisher's version
File Access Level
Controlled
Place of publicationNetherlands
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