Corporations generally must enter the capital markets for financing to fund their investment projects. The issuance of shares to shareholders and the issuance of debt to bondholders are the two primary sources of financial capital available to corporations. Because their claims differ, the interests of bondholders and shareholders frequently diverge. For example, relative to bondholders, shareholders generally prefer higher dividends, riskier projects, and financing new investment projects with additional debt. Bond contracts contain bond covenants that attempt to mitigate these potential conflicts. The contribution of this project comes from assembling a unique database on the contractual relations between shareholders and bondholders. The data are used to look directly at one of the most basic corporate relationships, that between shareholders and bondholders. Registration statements for bond issues are used to compile a database detailing the use of restrictive covenants in bond issues. The registration statements are for 327 nonconvertible bond issues registered at the Securities and Exchange Commission by 217 utilities and industrial firms during 1989 and an additional 198 registration statements for the same firms in 1986. The data will be placed in public archives and made available to other researchers in this area. This will be a significant contribution because previous work has had to rely on financial data sources that provide incomplete summaries of actual bond covenants.
