Creditor Control Rights and the Pricing of Private Loans
Type
conference speech
Author(s)
Abstract
This paper investigates the influence of creditor control rights on the pricing of corporate loans. We construct a novel dataset, which combines hand-collected covenant violations data with individual borrower, creditor, and loan contract information. Our data allows us to distinguish between creditors that receive direct control rights after a covenant violation and creditors that do not receive control rights after a violation. By comparing the loan terms of these two creditor types, we can isolate the impact of creditor control rights on loan pricing from the impact of other factors related to a covenant violation. We find that creditors exploit control rights to overprice new loans, and that this rent extraction is a key determinant of the loan premium puzzle.
Language
English
HSG Classification
None
HSG Profile Area
None
Event Title
28th Annual Meeting of the German Finance Association (DGF)
Event Location
Marburg
Event Date
30.09.2022
Subject(s)
Eprints ID
267970