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Loan amendments and capital structure

Author

Listed:
  • Espenlaub, Susanne
  • Khurshed, Arif
  • Neufeld, Anna

Abstract

We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996–2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.

Suggested Citation

  • Espenlaub, Susanne & Khurshed, Arif & Neufeld, Anna, 2025. "Loan amendments and capital structure," International Review of Financial Analysis, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finana:v:102:y:2025:i:c:s1057521925000110
    DOI: 10.1016/j.irfa.2025.103924
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    More about this item

    Keywords

    Bank loan; Syndicated loans; Capital structure; Covenants; Credit agreements; Loan amendment; Renegotiation; Private debt; Speed of adjustment; Target leverage; Financial intermediation;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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