TY - JOUR T1 - Do Bondholders Care about Managerial Stability? <em>Evidence from the Financial Services Industry</em> JF - The Journal of Investing SP - 92 LP - 100 DO - 10.3905/joi.2012.21.2.092 VL - 21 IS - 2 AU - Wei Du AU - Maya Waisman AU - Haizhi Wang AU - Mingming Zhou Y1 - 2012/05/31 UR - https://pm-research.com/content/21/2/92.abstract N2 - Using new bond issues in the financial services industry, this article examines whether and to what extent the capital markets recognize the risk associated with the mobility of human capital. The authors evaluate the state-by-state variations in the enforceability of noncompetition agreements in the U.S. to test the market-discipline hypothesis and find a significant negative relation between the degree of enforcement of noncompetition agreements and the yield spreads for bonds issued by financial institutions. Other findings include that the negative relation is more prominent for investmentgrade bonds and bonds with long-term maturities and that investors care more about managerial stability when bond issuers have weak protection of shareholder rights. Given the extreme importance of human capital in the financial services industry and the heightened turnover rate in the industry, this article sheds further light on the importance of intangible assets in shaping the perception of firm risk. Moreover, it establishes another robust link between law and finance in the sense that the regulatory environment has a significant effect on the cost of debt for financial firms.TOPICS: Fixed-income portfolio management, legal/regulatory/public policy, fixed income and structured finance ER -