About this event
Our research seminars provide a forum for academics to present and discuss their latest work. Academics come from both within the Business School and from external institutions. They share insights from their research or a paper in progress. This is followed by discussion and questions from the audience. The series is open to staff and students from across the University.
Hosted by
Finance
Speaker
Professor Karin S. Thorburn - Research Chair Professor of Finance at NHH Norwegian School of Economics and Adjunct Full Professor of Finance at The Wharton School of University of Pennsylvania, USA.
Before joining NHH in 2009, she was a full-time faculty member at the Tuck School of Business at Dartmouth College, USA.
Thorburn’s research focuses on M&A, credit, bankruptcy, IPOs, corporate governance, and corporate social responsibility. She publishes regularly in leading academic journals, including Journal of Finance, Journal of Financial Economics, Management Science, Journal of Financial and Quantitative Analysis, Journal of Financial Intermediation, Journal of Corporate Finance, and Journal of Environmental Economics and Management.
Thorburn is a Research Associate of the Center for Economic Policy Research (CEPR) in London and a Research Affiliate of the European Corporate Governance Institute (ECGI) in Brussels. She was previously Director of the Financial Management Association International, a Council member of the Society for Financial Studies, and Director of the Executive Committee of the European Finance Association.
Thorburn is a Director of the Board of Argentum Asset Management AS, Maritime & Merchant Bank ASA, Nussir ASA, Preferred Global Health AS, Green LNG Services AS, and Horus AS, and previously of SEB Investment Management AB and Nordea Bank Norway ASA. She has served on several public committees on banking regulation and the investment strategy of the $1.5 trillion Government Pension Fund Global, and she regularly participates in legal proceedings as an expert witness and judge.
Abstract
Corporate bonds include restrictive covenants that can prevent firms from pursuing valuable growth opportunities ex-post and are virtually impossible to renegotiate. We study a common but little known contractual provision—the defeasance option—which allows issuers to immediately remove all covenants without retiring the bond. Our theoretical model predicts, and our large-sample empirical analysis confirms, that financially constrained issuers facing high uncertainty and valuable growth opportunities, and bonds with numerous covenants, are more likely to include defeasance. We also show that investors demand lower yields when defeasance is included in non-callable and make-whole bonds, but higher yields in fixed-price callable bonds.