Lawsuits,Media Attention And Bond Covenants

With the promulgation of corporate bond Listing Pre-audit process and Corporate bond Listing Rules,China’s corporate bond market is booming.However,the institutional background of China is relatively special,and there are problems such as high concentration of equity and insufficient investor protection,which aggravate the agency conflict between the debtor and the debtor.The reasonable design of bond contract can effectively restrain debtor’s behavior and protect creditor’s interests,and promote the benign development of bond market.Therefore,this paper takes bond contract as the research object and tries to explore the relationship between internal and external factors of enterprises and bond issuance.In recent years,legal litigation has attracted widespread attention and become an important means for investors to protect themselves.However,litigation will bring many risks to enterprises and raise investors’ risk assessment of enterprises,which is not conducive to the formulation of bond contracts.In addition,China’s legal system is not perfect,in order to protect investors,we need to expand our vision to the alternative mechanism beyond the legal system.Media is considered to be a "fourth right" independent of the executive,judicial and legislative systems,which can exert governance effects and reduce the investment return requirements of bondholders.Further,legal litigation as a formal system and media attention as an informal system have different impacts on bond contracts.Will the relationship between legal litigation and bond contracts change under the influence of media attention? Based on this,this paper attempts to explore the relationship between legal proceedings,media attention and bond contracts.In this paper,the influencing factors and governance effect of bond contract are firstly sorted out,and the influence mechanism of legal litigation and media attention on bond contract is summarized and analyzed.On this basis,combined with the special institutional background of China,the principal-agent theory,information asymmetry theory,investor protection theory,contract theory and reputation theory are used to build the theoretical framework among legal proceedings,media attention and bond contract.Then,taking general corporate bonds issued in Shanghai and Shenzhen stock exchanges from 2014 to 2020 as samples,OLS and Poisson regression methods are used to carry out empirical research.The results show that :(1)legal litigation makes the formulation of corporate bond contracts more strict,and the effect increases with the increase of the number of lawsuits and the amount of lawsuits;(2)Media attention makes the formulation of corporate bond contracts more relaxed;(3)A competitive hypothesis is proposed for the influence of media attention on the relationship between legal proceedings and bond contracts: more relaxed and more strict,and the empirical results support the former.The empirical results also support the above conclusion after using propensity score matching method and instrumental variable method to correct the endogeneity problems caused by sample selection bias and bidirectional causality.Furthermore,this paper also finds that the marketization level is directly proportional to the severity of the bond contract of the litigation-involved enterprises,and the positive and negative media reports can make the bond contract more relaxed.Different from previous studies,this paper studies from the micro perspective of bond contract,reveals the impact of litigation events and media reports on it,and explores how informal institutions affect the relationship between formal institutions and bond contracts,so as to provide a way for enterprises to prevent litigation risks.