July 22, 2010
Do We Need More Bondholder Empowerment?
Prof. Bainbridge offers a nice summary of some of the blogosphere's responses to Dodd-Frank's shareholder empowerment provisions. The running critical theme is the disconnect between trying to solve a problem of excessive risk-taking in pursuit of short-term shareholder interests by giving more power to shareholders. Perhaps we should be empowering bondholders instead.
Bondholders frequently empower themselves. For example, covenants in publicly held bonds are one of the main reasons that publicly held companies in the "real economy" tend to have moderate debt-equity ratios and very little secured debt. Violations of those covenants give bondholders more leverage, even when the bonds are paid and current, than shareholders ever have in large publicly held companies not in the midst of a change in control.
Posted by: ohwilleke | Jul 26, 2010 5:07:19 PM