IDEAS home Printed from https://ideas.repec.org/p/cdl/anderf/qt1xw4w7sk.html
   My bibliography  Save this paper

Private vs. Public Lending: Evidence from Covenants

Author

Listed:
  • Kahan, Marcel
  • Tuckman, Bruce

Abstract

This paper compares the terms of 63 privately-placed debt agreements with those found in public bond indentures. The main results of the analysis are as follows: 1) Private agreements more aggressively control the actions of equity holders by setting various covenants more tightly, by contrasting on quantities that are volatile and not under the direct control of managers, and by using relatively vague terminology. This finding does not rely on credit quality differences between the public and private debt markets. Furthermore, covenant differences between investment grade and junk issues are less pronounced in the private market than in the public market. 2) Private agreements provide lenders with the means to monitor borrowers more carefully. 3) Private agreements attempt to control intra-claim conflicts, i.e. those arising between holders of the same bond issue. 4) Private agreements payment terms are tailored to suit lenders by avoiding embedded interest rate options.

Suggested Citation

  • Kahan, Marcel & Tuckman, Bruce, 1993. "Private vs. Public Lending: Evidence from Covenants," University of California at Los Angeles, Anderson Graduate School of Management qt1xw4w7sk, Anderson Graduate School of Management, UCLA.
    • Handle: RePEc:cdl:anderf:qt1xw4w7sk
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/1xw4w7sk.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. A. Baglioni, 1995. "Incomplete contracts, renegotiation, and the choice between bank loans and public debt issues," The European Journal of Finance, Taylor & Francis Journals, vol. 1(3), pages 257-278.
    2. Mark S. Carey & Mitchell A. Post & Steven A. Sharpe, 1996. "Does corporate lending by banks and finance companies differ? Evidence on specialization in private debt contracting," Finance and Economics Discussion Series 96-25, Board of Governors of the Federal Reserve System (U.S.).
    3. Valeri V. Nikolaev, 2010. "Debt Covenants and Accounting Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 137-176, March.
    4. Prilmeier, Robert, 2017. "Why do loans contain covenants? Evidence from lending relationships," Journal of Financial Economics, Elsevier, vol. 123(3), pages 558-579.
    5. Bergman, Nittai K. & Nicolaievsky, Daniel, 2007. "Investor protection and the Coasian view," Journal of Financial Economics, Elsevier, vol. 84(3), pages 738-771, June.
    6. Sadi Ozelge & Anthony Saunders, 2012. "The Role of Lending Banks in Forced CEO Turnovers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(4), pages 631-659, June.
    7. Nini, Greg & Smith, David C. & Sufi, Amir, 2009. "Creditor control rights and firm investment policy," Journal of Financial Economics, Elsevier, vol. 92(3), pages 400-420, June.
    8. Nemit Shroff, 2017. "Corporate investment and changes in GAAP," Review of Accounting Studies, Springer, vol. 22(1), pages 1-63, March.
    9. Joshua D. Rauh & Amir Sufi, 2010. "Capital Structure and Debt Structure," The Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4242-4280, December.
    10. Eric Powers & Sergey Tsyplakov, 2008. "What Is the Cost of Financial Flexibility? Theory and Evidence for Make‐Whole Call Provisions," Financial Management, Financial Management Association International, vol. 37(3), pages 485-512, September.
    11. Chatterjee, Chandrani & Shroff, Arpita A. & Sivaramakrishnan, K., 2022. "Debt contracting and the goodwill debate," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(2).
    12. Bergman, Nittai & Nicolaievsky, Daniel, 2004. "Investor Protection and the Coasian View," Working papers 4476-04, Massachusetts Institute of Technology (MIT), Sloan School of Management.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:anderf:qt1xw4w7sk. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/aguclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.