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.
| Original language | English |
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| Publication date | Dec 2018 |
| Number of pages | 74 |
| Publication status | Published - Dec 2018 |
| Event | The 16th International Paris December Finance Meeting - Paris, France Duration: 20 Dec 2018 → 20 Dec 2018 Conference number: 16 https://www.eurofidai.org/fr/conference/paris-december-2018 |
Conference
| Conference | The 16th International Paris December Finance Meeting |
|---|---|
| Number | 16 |
| Country/Territory | France |
| City | Paris |
| Period | 20/12/2018 → 20/12/2018 |
| Internet address |
Keywords
- Renegotiation
- Debt covenants
- Debt pricing