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

Date
2021
Authors
Xiang, Zhongnan
Wang, Wei
Basu, Sudipta
Contributor
Advisor
Department
Instructor
Depositor
Speaker
Researcher
Consultant
Interviewer
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
We examine the long-run performance of over 17,000 debt renegotiations. We find that, compared with non-renegotiating firms matched on size, book-to-market, profitability, and investment, renegotiating firms, on average, deliver 11 (19) percent higher stock returns over the three (five) years after the renegotiation. This renegotiation effect occurs regardless of the market’s initial reaction, is strongest for lender consents/waivers, decreases with the borrower’s bargaining power, and is causal. Renegotiations lead to immediate increases in capital expenditures and working capital, but lagged improvements in earnings and cash flow from operations. Renegotiations followed by larger improvements in accounting fundamentals have better long-run stock returns.
Description
Keywords
Debt renegotiations, long-run stock returns, incomplete contracts, financial flexibility, bank mergers
Citation
Extent
Format
Geographic Location
Time Period
Related To
Rights
Rights Holder
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.