Journal of Law, Finance, and Accounting > Vol 4 > Issue 1

Is it Worthwhile to Augment the Legal Protection of Public Debt Placed by Privately Held Companies?

Keren Bar Hava, Hebrew University, Israel, kbarhava@huji.ac.il Roi Katz, Ben-Gurion University of the Negev, Israel, roika@post.bgu.ac.il Beni Lauterbach, Bar-Ilan University and ECGI, Israel, beni.lauterbach@biu.ac.il
 
Suggested Citation
Keren Bar Hava, Roi Katz and Beni Lauterbach (2019), "Is it Worthwhile to Augment the Legal Protection of Public Debt Placed by Privately Held Companies?", Journal of Law, Finance, and Accounting: Vol. 4: No. 1, pp 67-101. http://dx.doi.org/10.1561/108.00000034

Published: 08 Oct 2019
© 2019 K. B. Hava, R. Katz and B. Lauterbach
 
Subjects
Corporate finance: Corporate governance,  Asset pricing: Fixed Income Securities,  Financial Markets: Security Issuance
 
Keywords
JEL Codes: G32, G34, G38
Public bonds of privately held companiescorporate governance improvementsRegulatory reforms in bond markets
 

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In this article:
1. Introduction
2. Background and Hypotheses
3. Sample and Data
4. The Effect of Amendment 17 on Private Bond Prices
5. The Effect of Amendment 17 on Private Bonds’ Issuance and Delisting
6. Complementary Evidence and Law Assessment
7. Summary and Conclusions
Appendix Table
References

Abstract

We examine the effects of a law amendment in Israel in 2011 that imposes a set of minimum corporate governance standards on privately held firms that issue publicly traded bonds. Two main results emerge. First, consistent with US evidence, the improved bondholder protection boosts the immediate market valuation of private firms’ bonds. Second, the amendment suppresses the private bonds market. After the amendment enactment, the number of private bond IPOs decreases sharply, and an extraordinary proportion of private firms redeem their existing public bonds early. However, given that the exiting firms had more related party transactions, it can be argued that the amendment increases market quality.

DOI:10.1561/108.00000034