Media Coverage and Bond Covenants: Evidence from China

Abstract

Existing studies on bond covenants have focused primarily on firm-level factors and have largely overlooked the influence of the external environment, including the media. Furthermore, previous research on media coverage has failed to consider its impact on the bond market. This study attempts to fill these gaps by examining the impact of media coverage on bond covenants for a sample of Chinese corporate bonds from 2007 to 2017. Our findings reveal a negative relationship between media coverage and the number of bond covenants. Further analysis demonstrates that this negative impact is more pronounced for non-state-owned firms, in highly competitive industries, and in regions with a weak legal environment. Additionally, media coverage with a non-negative tone leads to a reduction in the number of bond covenants. Notably, government-controlled media exerts a more significant influence than market-oriented media on bond covenants. Furthermore, both media coverage and bond covenants contribute to lower debt costs and are found to be interchangeable in their effects. Our analysis is robust to corrections for the endogeneity of the relationship between media coverage and bond covenants.