Debt Renegotiation and the Design of Financial Contracts
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This study examines the design of financial contracts after renegotiations. It focuses on the degree of renegotiation as measured by the number of amendments to the contract. I find that the design of renegotiated financial contracts is not homogenous, although the most frequent amendments are to the loan’s amount and maturity. I show that the number of amendments increases with longer maturities. Collateral and bank reputation have the opposite effect. Creditors friendly environments with fewer renegotiation frictions increase the number of amendments. Overall, contractual, organizational, and legal features have a significant influence on the design of financial contracts after renegotiation.
KeywordsFinancial contracts design Bank loans Debt renegotiation
JEL ClassificationG10 G21 G24
I am very grateful to the editors (Edward Prescott and Haluk Ünal) and an anonymous referee for very valuable comments, remarks, and suggestions. I am also grateful to Jocelyn Martel and Bill Francis for helpful comments as well as to participants at the AFFI 2016 (Liège) and FEBS 2016 (Malaga) Conferences for insightful discussions. The usual disclaimer applies.
This work has benefited from support by the initiative of excellence IDEX-Unistra (ANR-10-IDEX-0002-02) from the French national program “Investments for the future”.
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