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Debt Flexibility

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Abstract

How flexible are corporate loans after origination? Theory predicts coordination problems should make syndicated loans harder to modify than single-bank loans. We show the opposite. Using comprehensive regulatory data, we document that syndicated loans are modified frequently and respond to borrower distress, while single-lender loans are half as likely to be modified. This gap is not explained by covenants or performance pricing. Instead, syndicated loans are monitored more intensively. We show theoretically and empirically how fixed monitoring costs generate scale economies: larger loans justify continuous monitoring enabling flexible renegotiation, while smaller borrowers receive arm’s-length contracts with limited scope for modifications.

Suggested Citation

  • Rhys M. Bidder & Nicolas Crouzet & Margaret M. Jacobson & Michael Siemer, 2023. "Debt Flexibility," Finance and Economics Discussion Series 2023-076r1, Board of Governors of the Federal Reserve System (U.S.), revised 02 Mar 2026.
    • Handle: RePEc:fip:fedgfe:2023-76
    DOI: 10.17016/FEDS.2023.076r1
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    References listed on IDEAS

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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