The Value of Creditor Governance: Debt Renegotiations In and Outside Distress
This paper analyzes a structural model of a levered firm that can renegotiate debt outside and in distress. The firm renegotiates outside distress to waive its financing covenant when raising investment funds and renegotiates in distress to avoid bankruptcy costs. Incorporating the ability to renegotiate both outside and in distress is crucial to explaining timing patterns of debt renegotiations. Capturing realistic incentives and timing patterns of renegotiations allows us to quantify the value of creditor governance. We explain a rich set of empirical facts in terms of influence of renegotiable debt on security values and corporate policies.
|Date of creation:||Jul 2015|
|Date of revision:||Jul 2016|
|Contact details of provider:|| Phone: +41 71 243 40 11|
Fax: +41 71 243 40 40
Web page: http://www.unisg.ch/de/universitaet/schools/finance
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roberts, Michael R., 2015. "The role of dynamic renegotiation and asymmetric information in financial contracting," Journal of Financial Economics, Elsevier, vol. 116(1), pages 61-81.
- Mella-Barral, Pierre & Perraudin, William, 1997.
" Strategic Debt Service,"
Journal of Finance,
American Finance Association, vol. 52(2), pages 531-556, June.
- Pierre Mella-Barral & William R M Perraudin, 1993. "Strategic Debt Service," CEPR Financial Markets Paper 0039, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ..
- Gilson, Stuart C., 1990. "Bankruptcy, boards, banks, and blockholders : Evidence on changes in corporate ownership and control when firms default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 355-387, October.
- Hayne E. Leland, 1998. "Agency Costs, Risk Management, and Capital Structure," Journal of Finance, American Finance Association, vol. 53(4), pages 1213-1243, August.
- Hayne E. Leland., 1998. "Agency Costs, Risk Management, and Capital Structure," Research Program in Finance Working Papers RPF-278, University of California at Berkeley.
- Goyal, Vidhan K., 2005. "Market discipline of bank risk: Evidence from subordinated debt contracts," Journal of Financial Intermediation, Elsevier, vol. 14(3), pages 318-350, July.
- Efraim Benmelech & Nittai K. Bergman, 2008. "Liquidation Values and the Credibility of Financial Contract Renegotiation: Evidence from U.S. Airlines," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1635-1677.
- Efraim Benmelech & Nittai K. Bergman, 2008. "Liquidation Values and the Credibility of Financial Contract Renegotiation: Evidence from U.S. Airlines," NBER Working Papers 14059, National Bureau of Economic Research, Inc.
- Begley, Joy & Feltham, Gerald A., 1999. "An empirical examination of the relation between debt contracts and management incentives," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 229-259, April.
- Arnold, Marc & Wagner, Alexander F. & Westermann, Ramona, 2013. "Growth options, macroeconomic conditions, and the cross section of credit risk," Journal of Financial Economics, Elsevier, vol. 107(2), pages 350-385.
- Bhattacharya, Sudipto & Faure-Grimaud, Antoine, 2001. "The debt hangover: Renegotiation with noncontractible investment," Economics Letters, Elsevier, vol. 70(3), pages 413-419, March.
- Mella-Barral, Pierre, 1999. "The Dynamics of Default and Debt Reorganization," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 535-578.
- Nash, Robert C. & Netter, Jeffry M. & Poulsen, Annette B., 2003. "Determinants of contractual relations between shareholders and bondholders: investment opportunities and restrictive covenants," Journal of Corporate Finance, Elsevier, vol. 9(2), pages 201-232, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:usg:sfwpfi:2015:14. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geraldine Frei)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.