More Than Half Of Bond Agreements Include Poison Puts - Corporate Governance Structure or Mechanism for Shifting Risk? - September 2015
IRRC Institute
Description
Table 9: Effects of poison puts on risk-shifting
This table provides the results of regressions for the risk-shifting hypothesis. The dependent
variables are of the acquirer’s (1) market to book value of assets; (2) market leverage; (3)
earnings volatility, as defined in Table 7. The independent variables are: PoisonPut (an indicator
variable equal to one if the firm issued a bond with a poison put covenant within the last five
years), LogRevenue (the natural log of one plus the target’s sales), MarketToBook (the target’s
market to book value of assets), BookLeverage (the target’s book value of leverage), and
EarningsVolatility (the target’s earnings volatility based on the prior five years of income before
extraordinary items, scaled by assets). Year and Fama-French 12 fixed-effects are provided
where applicable.
Firm-clustered standard errors are provided below in parentheses. *, **, and *** denote significant differences in means and medians at the 10%, 5%, and 1% levels respectively. Market to Book Market Leverage Market Leverage Earnings Volatility (1) (5) (6) (7) (8) -0.034 -0.039* -0.039 -0.009* -0.010 (-0.199) (-1.299) (-1.485) (-1.652) (-1.624) (-1.652) (-1.646) 0.040 0.038 0.006 0.003 0.000 -0.003 -0.001 -0.002 (0.352) (1.042) (0.400) (0.012) (-0.366) (-0.754) (-0.862) 0.035 -0.123 -0.016 -0.012 0.017 0.015 -0.003 -0.004 (-1.040) (-1.247) (-1.224) (1.109) (1.004) (-1.091) (-1.680) -0.145 -0.299 0.228*** 0.221*** -0.007 -0.007 (-0.180) BookLeverage (4) -0.031 (0.208) MarketToBook (3) -0.043 (0.522) LogRevenue (2) -0.131 (-0.431) PoisonPut (-1.197) (3.632) (2.973) (-0.462) (-0.612) MarketLeverage 0.284*** 0.247*** (4.753) (3.258) EarningsVolatility Constant 0.088 0.058 (0.877) (0.694) 0.941 0.664 0.020 0.121 0.094 0.219 0.040 0.048 (0.470) (0.244) (0.130) (0.697) (0.637) (1.190) (1.036) (0.910) 494 494 494 494 494 494 494 494 5.27% 10.58% 21.64% 26.00% 23.11% 26.55% 3.43% 5.75% Year fixed-effects No Yes No Yes No Yes No Yes Industry fixed-effects Yes Yes Yes Yes Yes Yes Yes Yes Observations R 2 40 .
Firm-clustered standard errors are provided below in parentheses. *, **, and *** denote significant differences in means and medians at the 10%, 5%, and 1% levels respectively. Market to Book Market Leverage Market Leverage Earnings Volatility (1) (5) (6) (7) (8) -0.034 -0.039* -0.039 -0.009* -0.010 (-0.199) (-1.299) (-1.485) (-1.652) (-1.624) (-1.652) (-1.646) 0.040 0.038 0.006 0.003 0.000 -0.003 -0.001 -0.002 (0.352) (1.042) (0.400) (0.012) (-0.366) (-0.754) (-0.862) 0.035 -0.123 -0.016 -0.012 0.017 0.015 -0.003 -0.004 (-1.040) (-1.247) (-1.224) (1.109) (1.004) (-1.091) (-1.680) -0.145 -0.299 0.228*** 0.221*** -0.007 -0.007 (-0.180) BookLeverage (4) -0.031 (0.208) MarketToBook (3) -0.043 (0.522) LogRevenue (2) -0.131 (-0.431) PoisonPut (-1.197) (3.632) (2.973) (-0.462) (-0.612) MarketLeverage 0.284*** 0.247*** (4.753) (3.258) EarningsVolatility Constant 0.088 0.058 (0.877) (0.694) 0.941 0.664 0.020 0.121 0.094 0.219 0.040 0.048 (0.470) (0.244) (0.130) (0.697) (0.637) (1.190) (1.036) (0.910) 494 494 494 494 494 494 494 494 5.27% 10.58% 21.64% 26.00% 23.11% 26.55% 3.43% 5.75% Year fixed-effects No Yes No Yes No Yes No Yes Industry fixed-effects Yes Yes Yes Yes Yes Yes Yes Yes Observations R 2 40 .
