Creditor Governance and Corporate Policies: The Role of Debt Covenant Renegotiations

Marc Arnold, Ramona Westermann

Publikation: KonferencebidragPaperForskningpeer review

Abstrakt

This paper analyzes the impact of debt covenant renegotiations on corporate policies. We develop a structural model of a levered firm that can renegotiate debt both at investment and in corporate distress. Covenant renegotiation at investment disciplines equity holders in their financing and investment decisions and, hence, mitigates the agency cost of debt. Our model explains the empirical intensity and patterns of the occurrence of debt renegotiation. We also quantify the role of debt covenant renegotiations as a governance channel on corporate financial policies and on the value of corporate securities. Additionally, the model offers a rich set of novel testable predictions.
OriginalsprogEngelsk
Publikationsdato2016
Antal sider51
StatusUdgivet - 2016
BegivenhedThe 28th Annual Conference of the Northern Finance Association. NFA 2016 - Fairmont Tremblant, Mont-Tremblant, Québec, Canada
Varighed: 16 sep. 201618 sep. 2016
Konferencens nummer: 28
http://www.northernfinance.org/

Konference

KonferenceThe 28th Annual Conference of the Northern Finance Association. NFA 2016
Nummer28
LokationFairmont Tremblant
LandCanada
ByMont-Tremblant, Québec
Periode16/09/201618/09/2016
Internetadresse

Emneord

  • Debt covenants
  • Corporate investment
  • Renegotiation
  • Capital structure

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