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Legal Control Of Corporate Bond's Credit Risk

Posted on:2009-05-14Degree:DoctorType:Dissertation
Country:ChinaCandidate:H ZhouFull Text:PDF
GTID:1116360272984068Subject:Economic Law
Abstract/Summary:PDF Full Text Request
Issuance of corporate bond is one of the most important finance method in developed countries. While in China, the development of the corporate bond market is far behind the stock market. Worried about the credit risk, the governments took strict restriction on the corporate bond market. To settle this problem needs the construction of an effective risk control system. But so far, the research on this topic in domestic is still at the starting stage. As a result, the attempt to analyze and study on the legal control of bond's credit risk should have certain positive effect.Different from the current research, this dissertation puts forward the following points that corporate bond's credit risk is bound to exist, but an effective legal control mechanism can prevent, reduce and ease credit risk, so as to promote the healthy development of the corporate bond market. To achieve the above perspective, this paper is divided into four chapters.Chapter One introduces the fundamental theory and social practice of corporate bond's credit risk. By describing the concept, origin and characteristic of corporate bond's credit risk as well as the present situation of China, this chapter explains why the law pays attention to it and provides theoretical and practical background for further analysis. And the next three chapters focus on proposing specific regulation to the corporate bond's credit risk.Chapter Two discusses the distribution of controlling power in corporate. As this chapter proved, the effective distribution of controlling power will promote corporate's operating performance and management achievements, improve the corporate quality at the same time improve the bond quality, and fundamentally reduce the credit risk control in corporate. In those corporates with concentration of shares, the controlling shareholders attempt to abuse their power. So it is nessecery to require the controlling shareholder bear the fiduciary duty towards the corporate. Since the establishment of the modern corporate system, management control is a direct result of the separation of the ownership and control of the corporate. The directors and the officers often seek personal profit at the price of corporate's interests. In order to prevent moral hazard, the management is obligated to assume ficiary duty. The bondholders can exercise controlling power in case that the enterprise is in a state of bankruptcy, through the mechanism of reconciliation, restructuring and liquidation.Chapter Three deals with legal protection to corporate bondholders. The traditional legal rules have obvious flaws in terms of control of credit risk. Limited liability of shareholders is likely to increase credit risk. Therefore, under specific conditions, the bondholders can lift the corporate's veil and request the shareholders to undertake the responsibilities. In order to balance different interests in the corporate, strengthen the director's responsibility becomes a trend of the development of modern corporate law. Mandatory security will bring far more harms to the bond market than benefits. The development of modern law is to abolish the compulsive security set on bonds, and at the same time give the security more flexibility. The bondholders may feel helpless under the narrow protection of contract law. For this reason, it is necessary to create an legal system for collective action. The emphasis on the protection under the indenture calls for an active involvement of the Court during the interpretation of the indenture.Chapter Four analyzes the legal system of risk supervision. How to prevent credit risks and at the same time optimize the efficiency and distribution of resources? This is the same problem that regulatory agencies of many countries are facing with the acceleration of liberalization of bond market and the increase of risk. On one hand, the government should relax regulation of bond issuance. On the other hand, the government must strengthen the disclosure of information and guarantee the independence and impartiality of credit rating.
Keywords/Search Tags:corporate bond, credit risk, controlling power, bondholder, regulation
PDF Full Text Request
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