Please use this identifier to cite or link to this item:

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

File Size Format  
HARC-2021 paper 159.pdf 970.99 kB Adobe PDF View/Open

Item Summary

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.
Appears in Collections: 14 Financial Accounting 7: Debt Market Research (Including Credit Ratings/Debt Contracts)

Please email if you need this content in ADA-compliant format.

Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.