The value of creditor control in corporate bonds

Feldhütter, Peter; Hotchkiss, Edith S.; Karakaş, Oğuzhan

doi:10.1016/j.jfineco.2016.03.007

Cited by 63 publications

(31 citation statements)

References 50 publications

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“…In addition, our model is the first to explain the joint distribution of debt control premia and corporate events. Specifically, the baseline model generates control premia time patterns that are consistent with the empirical evidence in Feldhütter, Hotchkiss, and Karakas (2016) that such premia increase before defaults and covenant violations. Overall, we find that modeling debt renegotiation constitutes a crucial step towards improving corporate finance models' ability to explain observed debt prices.…”

Section: Introductionsupporting

confidence: 74%

The Impact of Renegotiable Debt on Firms

Arnold

Westermann

2018

SSRN Journal

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This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.

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Section: Introductionsupporting

confidence: 74%

The Impact of Renegotiable Debt on Firms

Arnold

Westermann

2018

SSRN Journal

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“…9 See, for example, Mikkelson and Partch (1986), James (1987), Datta et al (1999), Nini et al (2012), Ongena et al (2014), Carey and Gordy (2016), and Feldhütter et al (2016).…”

Section: Introductionmentioning

confidence: 99%

Concentration of control rights in leveraged loan syndicates

Berlin

Nini

2020

Journal of Financial Economics

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We find that corporate loan contracts frequently concentrate control rights with a subset of lenders. Despite the rise in term loans without financial covenants-so-called covenant-lite loans-borrowing firms' revolving lines of credit almost always retain traditional financial covenants. This split structure gives revolving lenders the exclusive right and ability to monitor and to renegotiate the financial covenants, and we confirm that loans with split control rights are still subject to the discipline of financial covenants. We provide evidence that split control rights are designed to mitigate bargaining frictions that have arisen with the entry of nonbank lenders and became apparent during the financial crisis.

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“…Djankov et al (2007) show that different countries' legal systems provide creditors rights of very different strength. Where creditor rights are stronger, borrowing is less costly and credit is more available (Djankov et al 2007;Qian and Strahan 2007;Bae and Goyal 2009;Boubakri and Ghouma 2010;Chen et al 2016;Feldhütter, et al 2016;Rodano et al 2016). Credit also becomes more available after countries strengthen creditor rights (Giannetti 2003;Djankov et al 2007).…”

Section: Creditorsmentioning

confidence: 99%

Governance and Stakeholders

Mehrotra

Mørck

2017

The Handbook of the Economics of Corporate Governance

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This paper is intended for the Handbook of Corporate Governance. We are grateful to the editors, Ben Hermalin, Michael Weisbach, for helpful suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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The value of creditor control in corporate bonds

Cited by 63 publications

References 50 publications

The Impact of Renegotiable Debt on Firms

The Impact of Renegotiable Debt on Firms

Concentration of control rights in leveraged loan syndicates

Governance and Stakeholders

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