On Bond Provisions and M&A Activity

Sammanfattning: The share of bonds issued with a call provision has increased during the last 20 years. We find that companies with callable bond debt are more likely to become takeover targets. Furthermore, we examine the isolated effect of restrictive covenants and the joint effect of restrictive covenants and call provisions on the likelihood of becoming acquired. We find a significant positive correlation between callable bond debt combined with restrictive covenants and the probability of becoming acquired. Lastly, our results indicate bond provisions have no effect on bargaining power between acquiring and target shareholders.