Debt Renegotiations Outside Distress

Item Type Forthcoming
Abstract This paper analyzes the impact of debt covenant renegotiations on corporate policies. We develop a structural model of a levered firm that can renegotiate debt both at investment and in corporate distress. Covenant renegotiation at investment disciplines equity holders in their financing and investment decisions and, hence, mitigates the agency cost of debt. Our model explains the empirical intensity and patterns of the occurrence of debt renegotiation. We also quantify the role of debt covenant renegotiations as a governance channel on corporate financial policies and on the value of corporate securities. Additionally, the model offers a rich set of novel testable predictions.
Authors Arnold, Marc & Westermann, Ramona
Journal or Publication Title Review of Finance
Language English
Keywords Debt Covenants, Corporate Investment, Renegotiation, Capital Structure
Subjects business studies
economics
HSG Classification contribution to scientific community
Refereed No
Date 2022
Publisher Oxford University Press
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2015/14
Number of Pages 52
ISSN 1572-3097
Contact Email Address mark.arnold@unisg.ch
Depositing User Prof. Dr. Marc Arnold
Date Deposited 17 Aug 2015 15:35
Last Modified 28 Sep 2022 09:17
URI: https://www.alexandria.unisg.ch/publications/243246

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Arnold, Marc & Westermann, Ramona (2022) Debt Renegotiations Outside Distress. Review of Finance, (2015/14). ISSN 1572-3097

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https://www.alexandria.unisg.ch/id/eprint/243246
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