Legal framework, management ownership, and bond maturity

We study how the legal framework and management ownership affect agency problems and consequently bond maturities. Earlier studies on the relationship between management ownership and bond maturities have produced quite ambiguous results. When taking country level investor protection into account for a set of European countries, we find evidence for two distinctly different patterns of concave vs convex relationships between inside ownership and bond maturity in common and civil law countries, respectively. Such patterns may explain the mixed earlier results. Our results indicate that in common law countries, high inside ownership is associated with higher agency problems, bringing forth a concave relationship, whereas in civil law countries, due to initially lower investor protection, there are signs of a negative association between agency problems and inside ownership already at low ownership levels, and a convex overall pattern. Stronger creditor protection is associated with a concave relationship.