Implications of Firms' Interactions with Debt Markets
In this thesis I present three papers on "Implications of Firms' Interactions with Debt Markets". Chapter 1 provides an introduction to the thesis. Chapter 2 presents the paper "Does a Firm's Bond IPO have Implications for the Degree of Monitoring by Private Lenders?". This paper looks at whether private lenders change their degree of monitoring of loans granted to a firm after the firm goes through a bond IPO. I find that the degree of monitoring on private loans increases after a firm issues public debt for the first time. Chapter 3 presents the paper "Is Cost of Equity a Function of Leverage? The Case of Bond IPOs", a co-authored paper with Paul Dion. In this paper, we investigate whether the changes that a bond IPO brings to the environment of the firm impact the riskiness of the equity of the firm. We find that the changes in the information, monitoring and agency environment brought about by a bond IPO indeed influence the direction and magnitude of the change of its cost of equity. Chapter 4 presents "Do Credit Default Swaps Impact Lenders' Monitoring on Loans?". In this paper, I build on my examination of monitoring of loans by investigating whether lenders change the comprehensiveness and intensity of loan covenants after the firm's Credit Default Swap (CDS) starts trading. The results provide solid evidence that lenders decrease their degree of monitoring on loans after the inception of a firm's CDS. Chapter 5 concludes the thesis, summarizing the results of the core papers.