Why does Corporate Governance Matter? Evidence from Seasoned Bond Offerings

• Main Author: WANG, Fang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2010
• Subjects: corporate governance; earnings management; seasoned bond offerings; Business Law, Public Responsibility, and Ethics; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/etd_coll/55; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1054&context=etd_coll
• Institution: Singapore Management University

To examine the importance of corporate governance, I look at how management and investors behave in the event of seasoned bond offerings, controlling for the corporate governance structure of issuing firms. I find that companies with the weakest governance structure aggressively manipulate their earnings upwards during the two years prior to the debt issuances. And when the bond offerings are announced to the market, these same firms experienced positive abnormal returns over a three day event period, indicating that investors of poorly governed firms value a debt financing for the alleged decrease in agency cost.