The Impact Of Creditors’ Protection Clause On Bond Price And Cash Dividends-Empirical Study On Corporate Bond Market Based On A Share

The protection of creditors has an important impact on corporate governance and corporate external financing.If the creditors’ rights are not well protected,this will aggravate the information asymmetry andmoral hazard between shareholders and creditors,and the agency costs of the debt will be big.Besides,the company’s financing policy and dividend policy will also be affected.Therefore,it is of great significance to study the impact of creditors’ protection on corporate governance.In the introduction of external debt financing,contract terms of the bond will be very important for the protection of creditors.Therefore this paper chooses the random effect model to study the impact of creditors’protection on corporate governance by using A-share corporate bond data from 2013 to 2015.Considering the method of predecessors,this paper constructs the investor protection index according to the terms of the bond contract as an explanatory variable.The financing cost and dividend policy are the two most important indicators for both the issuing company and the investor,and they are also the reflection of the principal-agent problem in the corporate governance.Therefore,this paper first discusses the impact of the bond contract covenants on the bond price from the perspective of financing cost.Then,from the perspective of the dividend policy of the issuing company,the paper studies the influence of the covenants design on the dividend payment of the issuing company.In the study of the relationship between investor protection and bond prices,this paper finds a positive "U" curve.Which means that with the increase in the degree of creditors’ protection,the price of bonds first decline,and then rise.When considering the cash dividend of the issuing company,this paper finds that the creditors,protection and cash dividend payout rate have inverted "U" curve relationship.The paper considers the reasons for the two graphs together and explains:Initially,as the degree of investor protection increases,the rights of creditors increase and the agency costs of debt reduce.At that time the agency cost of the equity is large,so the company will increase the cash dividend rate to balance the capital costs of equity and debt,and after that bond financing costs rise.When creditors,protection reaches a certain level,creditors will play a regulatory role,and force the company to reduce the cash dividend rate to prevent transferring the interests from creditors to shareholders,and after that bond financing costs decrease.In addition,this paper validates the existence of alternative assumptions and hypothesis assumptions.In the alternative hypothesis,dividend payments are positively related to the rights of creditors.When creditors’ protection is weak,the company will reduce the distribution of dividends in order to establish a good reputation.In the hypothesis assumptions,the better the protection of creditors,the company’s dividend payment is lower,in line with inverted "U" type relationship found in this article.In order to better study the relationship between bond covenants design and corporate governance,this paper also constructs the governance index and the event index,and carries out in group separately.Although the significance level of the results reduces,the previously validated "U" type and inverted "U" type relationship are still existed.In order to increase the reliability of the conclusions,the paper adds robustness analysis and finds that the results are effective.The main contribution of this paper is collecting the covenant terms of the corporate bonds from the bond raising instruction manually and constructing the creditors’ protection index,in order to measure the protection status of the Chinese bond investors from point of the covenants design.Besides,this paper provides the empirical evidence of the relationship among design of the corporate bond covenant terms,bond price,and the issuing company’s cash dividend policy.The author hopes that the conclusion will be useful to the bond company when they choose the contract clause,and can improve the protection awareness of the bond investor’s.In addition,the conclusions of this paper may have some reference significance for the later scholars to study the investor protection in corporate governance.