Abstract
The quality of corporate governance is essential for enterprises’ sustainable management. However, there are only a few documents probe into the relationship between corporate governance and corporate bond yield spreads. The research utilizes two proxies, Governance Index and Entrenchment Index, to explore bondholders’ reactions to the firms which face different levels of possibility of being taken over, and further recognizes the amount of cash in companies and the quantity of free cash flows in low growth companies. We use 2076 sums of non-convertible corporate bond issued by 432 companies from the year 2000 to the year 2006 as models, and control the impacts of industries and companies. As the result, subordinated bondholders are much more concerned than senior bondholders about if the bond issued firms are encountering the threat of taking over. The amount of cash in companies and the quantity of free cash flows in low growth companies are not subjects to bondholders. The resultant evidence shows no significant correlation to corporate bond yield spreads.