Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/70543

Long-run Performance of Debt Renegotiations: Large-Sample Evidence

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Title:Long-run Performance of Debt Renegotiations: Large-Sample Evidence
Authors:Tracy Xiang
Wei Wang
Sudipta Basu
Keywords:Debt Renegotiation
Long-Run Performance
Incomplete Contracts
Large Sample
Date Issued:16 Aug 2020
Abstract:We examine the long-run performance of over 16,000 debt renegotiations. We find that, compared with non-renegotiating firms matched on size, book-to-market, profitability, and investment, renegotiating firms deliver 13% (20%) higher stock returns over the three (five) years following the renegotiation. This renegotiation effect is strongest for waivers and for amendments to loan interest rates and financial covenants. Renegotiations lead to improvements in accounting-based performance measures including return on assets, cash flow from operations, and financial distress. Consistent with incomplete contract theory, our evidence shows that renegotiations alleviate ex-post inefficiencies in credit agreements and produce long-term gains for the borrower.
URI:http://hdl.handle.net/10125/70543
Appears in Collections: 14 Financial Accounting 7: Debt Market Research (Including Credit Ratings/Debt Contracts)


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