The Determinants of Bond Covenants: The Case of US Firms

The objective of this paper is to highlight different factors relating to firm’s characteristics and debt’s characteristics that may influence the presence of different types of bond covenant in debt contract. Using a sample of large US firms and choosing only a contract per firm over the period 2000-2010, we find that, concerning the firm’s characteristics, the inclusion of a large number of covenants in the debt agreement is related to the high indebtedness of the firm, to unavailability of cash flow and, also, to the firmʹs profitability. Regarding the debt’s characteristics, we find that the inclusion of bond covenants depends on the maturity of the debt and the debt rating. Our results are steady with previous studies.