City Research Online

The Rise of Covenant-Lite Bond Contracting

Gietzmann, M., Isidro, H. & Raonic, I. ORCID: 0000-0003-2982-8445 (2021). The Rise of Covenant-Lite Bond Contracting. JAAF: Journal of Accounting Auditing and Finance, 38(3), pp. 483-509. doi: 10.1177/0148558x20987384


We investigate the trading and yield effects of covenant-lite (cov-lite) high-yield bond contracts, which have a restricted (lite) set of covenants. The excluded covenants often are those that use accounting performance measures. Although much research has focused on the potential benefits of accounting as a basis for debt contracting, little is known about settings where it may be optimal to exclude accounting performance statistics from public debt contracts. We find that cov-lite high-yield bonds have a higher trading turnover and lower yield spreads. Our findings provide empirical support for theory which predicts, for optimal bond covenant design, that a trade-off between improving trading ease versus enhanced investor protection needs to be managed. These results enhance our understanding of the limits of accounting’s role in (bond) contracting design.

Publication Type: Article
Additional Information: This is the author accepted manuscript of Gietzmann M, Isidro H, Raonic I. The Rise of Covenant-Lite Bond Contracting. Journal of Accounting, Auditing & Finance. January 2021. doi:10.1177/0148558X20987384
Publisher Keywords: covenants, debt, risk, turnover, trading volume, control rights
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of JAAF-final version.pdf]
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (766kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login