The Impact of Renegotiable Debt on Firms

Marc Arnold, Ramona Westermann

Publikation: KonferencebidragPaperForskningpeer review

Resumé

This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.
OriginalsprogEngelsk
Publikationsdatodec. 2018
Antal sider74
StatusUdgivet - dec. 2018
BegivenhedThe 16th International Paris December Finance Meeting - Paris, Frankrig
Varighed: 20 dec. 201820 dec. 2018
Konferencens nummer: 16
https://www.eurofidai.org/fr/conference/paris-december-2018

Konference

KonferenceThe 16th International Paris December Finance Meeting
Nummer16
LandFrankrig
ByParis
Periode20/12/201820/12/2018
Internetadresse

Emneord

  • Renegotiation
  • Debt covenants
  • Debt pricing

Citer dette

Arnold, M., & Westermann, R. (2018). The Impact of Renegotiable Debt on Firms. Afhandling præsenteret på The 16th International Paris December Finance Meeting, Paris, Frankrig.
Arnold, Marc ; Westermann, Ramona . / The Impact of Renegotiable Debt on Firms. Afhandling præsenteret på The 16th International Paris December Finance Meeting, Paris, Frankrig.74 s.
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abstract = "This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.",
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Arnold, M & Westermann, R 2018, 'The Impact of Renegotiable Debt on Firms' Paper fremlagt ved The 16th International Paris December Finance Meeting, Paris, Frankrig, 20/12/2018 - 20/12/2018, .

The Impact of Renegotiable Debt on Firms. / Arnold, Marc; Westermann, Ramona .

2018. Afhandling præsenteret på The 16th International Paris December Finance Meeting, Paris, Frankrig.

Publikation: KonferencebidragPaperForskningpeer review

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T1 - The Impact of Renegotiable Debt on Firms

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AU - Westermann, Ramona

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N2 - This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.

AB - This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.

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KW - Debt covenants

KW - Debt pricing

M3 - Paper

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Arnold M, Westermann R. The Impact of Renegotiable Debt on Firms. 2018. Afhandling præsenteret på The 16th International Paris December Finance Meeting, Paris, Frankrig.