Hold-up and the Use of Performance-sensitive Debt

Tim R. Adam, Daniel Streitz

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We examine whether performance-sensitive debt (PSD) is used to reduce hold-up problems in long-term lending relationships. We find that the use of PSD is more common in the presence of a long-term lending relationship and if the borrower has fewer financing alternatives available. In syndicated deals, however, the presence of a relationship lead arranger reduces the use of PSD because a lead arranger has little incentive to hold-up a client. Further supporting the hypothesis that hold-up concerns motivate the use of PSD, we find a substitution effect between the use of PSD and the tightness of financial covenants.
Original languageEnglish
JournalJournal of Financial Intermediation
Pages (from-to)47-67
Number of pages21
Publication statusPublished - 2016
Externally publishedYes


  • Performance-sensitive debt
  • Relationship lending
  • Hold-up
  • Holdout
  • Syndicated debt
  • Covenants

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