The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Thu, 29 Jul 2021 13:10:23 +0000 en-US hourly 1 https://wordpress.org/?v=5.7.2 The Value of Creditor Control in Corporate Bonds https://corpgov.law.harvard.edu/2016/07/31/the-value-of-creditor-control-in-corporate-bonds-2/ https://corpgov.law.harvard.edu/2016/07/31/the-value-of-creditor-control-in-corporate-bonds-2/#respond Sun, 31 Jul 2016 13:48:30 +0000 http://corpgov.law.harvard.edu/?p=73407?d=20160731094830EDT Posted by Oğuzhan Karakaş, Boston College, on Sunday, July 31, 2016
Editor's Note: Oğuzhan Karakaş is an Assistant Professor of Finance at Boston College. This post is based on an article authored by Professor Karakaş; Peter Feldhütter, Assistant Professor of Finance at London Business School; and Edith Hotchkiss, Associate Professor of Finance at Boston College.

In our article, The Value of Creditor Control in Corporate Bonds, recently published in the Journal of Financial Economics, we introduce a measure that captures the premium in bond prices that is due to the value of creditor control. We estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swaps (CDS) contracts. The main insight for the methodology is that CDS prices reflect the cash flows of the underlying bonds, but not the control rights. The premium we introduce captures the marginal value of control in a bond until the bond matures or—in the case of a payment default or bankruptcy—until the CDS contracts for that issuer settle, and hence is a lower bound for the control premium.

(more…)

]]> https://corpgov.law.harvard.edu/2016/07/31/the-value-of-creditor-control-in-corporate-bonds-2/feed/ 0 The Value of Creditor Control in Corporate Bonds https://corpgov.law.harvard.edu/2016/06/23/the-value-of-creditor-control-in-corporate-bonds/ https://corpgov.law.harvard.edu/2016/06/23/the-value-of-creditor-control-in-corporate-bonds/#respond Thu, 23 Jun 2016 13:04:16 +0000 http://corpgov.law.harvard.edu/?p=73160?d=20160623090416EDT Posted by Oguzhan Karakas, Boston College, on Thursday, June 23, 2016
Editor's Note: Oğuzhan Karakaş is Assistant Professor of Finance at the Carroll School of Management at Boston College. This post is based on an article authored by Professor Karakaş; Peter Feldhütter, Assistant Professor of Finance at London Business School; and Edith S. Hotchkiss, Associate Professor of Finance at the Carroll School of Management at Boston College.

In our article, The Value of Creditor Control in Corporate Bonds, recently published in the Journal of Financial Economics, we introduce a measure that captures the premium in bond prices that is due to the value of creditor control. We estimate the premium as the difference in the bond price and an equivalent synthetic bond without control rights that is constructed using credit default swaps (CDS) contracts. The main insight for the methodology is that CDS prices reflect the cash flows of the underlying bonds, but not the control rights. The premium we introduce captures the marginal value of control in a bond until the bond matures or—in the case of a payment default or bankruptcy—until the CDS contracts for that issuer settle, and hence is a lower bound for the control premium.

(more…)

]]> https://corpgov.law.harvard.edu/2016/06/23/the-value-of-creditor-control-in-corporate-bonds/feed/ 0