Legal Environment and Corporate Bonds: The Primal Role of Information

Abstract

This paper appraises the relative impact of creditor information and creditor rights on corporate bond issues. I employ a large panel of 3,969 bond issuers from 54 countries, between 2013 and 2017. I constantly find that an increase in creditor information is associated with an increase in the amounts of bonds issued. On the opposite, I document a very limited impact of creditor protection. Considering both simultaneously, only the positive impact of information persists, supporting a primal role of information on bond markets. I show that the positive effect of information originates from both the supply- and demand-side of the bond market, with lower coupon rates, less restrictive covenants, longer maturities and more frequent issues. I further document how creditor information alleviates issues stemming from firm’s opacity and firm’s risk. Results are robust to different specifications and robustness tests.