Essays on governance, managerial opportunism and debt costs and ratings

Some recent studies show that lenders do not only rely on the firm's past profitability and on the issue characteristics in order to infer the expected cash flows (and default probability). In fact, investors also price the firm's corporate governance structure as well as the quality of its institutional environment. This is essentially due to the fact that the firm's success (and hence its ability to pay back its bondholders) is closely related to the extent of agency conflicts within the firm. Specifically, debtholders face two major problems: (i) the controlling shareholders' expropriation, and, (ii) the managers' opportunistic behaviour. The main focus of the current thesis is to show whether and how these two problems affect the costs and the ratings of firm's bond issues.;In the first paper, we explore the effect of shareholders' expropriation on the costs and ratings of firms' bonds in a multi-national sample of firms. We find strong evidence that ultimate ownership (i.e., the voting/cash-flow rights wedge) and family control have a positive and significant effect on bond costs, and a negative and significant effect on bond ratings. Moreover, our results suggest that control in the hands of widely held financial firms has a positive effect on bond ratings only, and that State control has no effect on either bond costs or ratings. When we control for the institutional environment, we find that a higher protection of debtholders' rights generally reduces bond costs and increases corporate bond ratings. Our results also show that, for both bondholders and rating agencies, the enforcement of debt laws is crucially important.;In the second paper we attempt to shed lights on the impact of managerial opportunism on the cost of debt financing. Using managerial entrenchment and earnings management activities to proxy for managers' opportunism, we find that firms with less entrenched managers enjoy lower corporate bond costs and higher credit ratings. In addition, our results suggest that bondholders generally require higher bonds costs, while rating agencies assign lower credit ratings to firms that inflate their earnings (i.e. income-increasing earnings management). We further investigate the role of the Sarbanes-Oxley Act adoption on the perceptions of these two debt market actors. We find strong evidence that the dramatic changes required by this Act have enhanced the "monitoring" role of the debt market since we document that the above results are generally observed only for the post-SOX period.;Keywords: Bond costs and ratings, ultimate ownership, corporate governance, expropriation, earnings management, entrenchment, opportunism, creditors rights, Sarbanes-Oxley Act.