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Debt renegotiation and debt overhang: Evidence from lender mergers

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  • Chu, Yongqiang

Abstract

This paper studies whether debt renegotiation mitigates debt overhang and improves investment efficiency. Using mergers between lenders participated in the same syndicated loans as natural experiments that exogenously reduce the number of lenders and thus make renegotiation easier, I find that firms affected by the mergers experience more loan renegotiations and increase capital expenditure investment. I also find that the effect is stronger for firms with higher Q, suggesting improved investment efficiency. Further evidence suggests that the effect concentrates on loans without performance pricing provisions and unsecured loans, providing further support that lender mergers improves investment efficiency for firms suffering from debt overhang ex ante.

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  • Chu, Yongqiang, 2016. "Debt renegotiation and debt overhang: Evidence from lender mergers," MPRA Paper 72403, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72403
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    Cited by:

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    3. HONDA Tomohito & ONO Arito & UESUGI Iichiro & YASUDA Yukihiro, 2023. "Anatomy of Out-of-court Debt Workouts for SMEs," Discussion papers 23088, Research Institute of Economy, Trade and Industry (RIETI).
    4. Chu, Yongqiang & Lin, Luca X. & Xiao, Zhanbing, 2024. "Agree to disagree: Lender equity holdings, within-syndicate conflicts, and covenant design," Journal of Financial Intermediation, Elsevier, vol. 57(C).
    5. Kang, Di & Zhuang, Zhuang, 2019. "Should companies care who their lender is? Evidence from loan covenants," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    6. Amiraslani, Hami & Donovan, John & Phillips, Matthew A. & Wittenberg-Moerman, Regina, 2023. "Contracting in the Dark: The rise of public-side lenders in the syndicated loan market," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    7. Safiullah, Md & Alam, Md Samsul & Islam, Md Shahidul, 2022. "Do all institutional investors care about corporate carbon emissions?," Energy Economics, Elsevier, vol. 115(C).

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    More about this item

    Keywords

    Debt Overhang; Renegotiation; Syndicated Loan; Underinvestment; Investment Efficiency;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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