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Does renegotiation of financial contracts matter for shareholders? Empirical evidence from Europe

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  • Christophe Godlewski

    ()
    (LaRGE Research Center, Université de Strasbourg)

Abstract

Using a large sample of bank loan renegotiations by European firms, I show that renegotiation of financial contracts matters for shareholders and can increase their wealth. I find that amendments to financial covenants and to loan amounts increase borrower’s cumulative abnormal return by 10% to 15%. Early and less frequent renegotiations of bilateral loans with short maturity also imply a positive stock market reaction. Amendments signaling the early accrual of new, valuable and positive information allow increasing shareholders value. The renegotiation of financial contracts bears a certification role as contracts become more efficient over time, to the benefits of the shareholders.

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Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2013-03.

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Date of creation: 2013
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Handle: RePEc:lar:wpaper:2013-03

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Keywords: renegotiation; financial contracts; bank loans; shareholders value; event studies; Europe.;

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Cited by:
  1. Christophe Godlewski, 2014. "What drives the dynamics of bank debt renegotiation in Europe? A survival analysis approach," Working Papers of LaRGE Research Center 2014-01, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

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