Debt heterogeneity and covenants
Coordination failure among owners of heterogeneous debt types increases distress costs. Covenants reduce expected distress costs by lowering the probability of liquidity shortages, increasing liquidation values, and incentivizing creditor monitoring. We predict and find that new debt contracts inclu...
Saved in:
Main Authors: | , |
---|---|
Format: | text |
Language: | English |
Published: |
Institutional Knowledge at Singapore Management University
2019
|
Subjects: | |
Online Access: | https://ink.library.smu.edu.sg/soa_research/1800 https://ink.library.smu.edu.sg/context/soa_research/article/2827/viewcontent/Debt_heterogeneity_and_covenants_sv.pdf |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
Institution: | Singapore Management University |
Language: | English |
id |
sg-smu-ink.soa_research-2827 |
---|---|
record_format |
dspace |
spelling |
sg-smu-ink.soa_research-28272019-09-20T02:08:55Z Debt heterogeneity and covenants LOU, Yun OTTO, Clemens A. Coordination failure among owners of heterogeneous debt types increases distress costs. Covenants reduce expected distress costs by lowering the probability of liquidity shortages, increasing liquidation values, and incentivizing creditor monitoring. We predict and find that new debt contracts include more covenants when borrowers' existing debt structures are more heterogeneous. Our findings suggest that covenants are not only used to address creditor-shareholder conflicts but also to reduce the expected costs of coordination failure among creditors. Further, our results indicate a dynamic component missing from static debt structure models: Debt heterogeneity entails additional covenants (i.e., constraints) when raising future debt. 2019-05-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1800 info:doi/10.1287/mnsc.2018.3141 https://ink.library.smu.edu.sg/context/soa_research/article/2827/viewcontent/Debt_heterogeneity_and_covenants_sv.pdf https://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Debt Heterogeneity Debt Covenants Creditor Conflicts Coordination Failure Accounting Corporate Finance |
institution |
Singapore Management University |
building |
SMU Libraries |
continent |
Asia |
country |
Singapore Singapore |
content_provider |
SMU Libraries |
collection |
InK@SMU |
language |
English |
topic |
Debt Heterogeneity Debt Covenants Creditor Conflicts Coordination Failure Accounting Corporate Finance |
spellingShingle |
Debt Heterogeneity Debt Covenants Creditor Conflicts Coordination Failure Accounting Corporate Finance LOU, Yun OTTO, Clemens A. Debt heterogeneity and covenants |
description |
Coordination failure among owners of heterogeneous debt types increases distress costs. Covenants reduce expected distress costs by lowering the probability of liquidity shortages, increasing liquidation values, and incentivizing creditor monitoring. We predict and find that new debt contracts include more covenants when borrowers' existing debt structures are more heterogeneous. Our findings suggest that covenants are not only used to address creditor-shareholder conflicts but also to reduce the expected costs of coordination failure among creditors. Further, our results indicate a dynamic component missing from static debt structure models: Debt heterogeneity entails additional covenants (i.e., constraints) when raising future debt. |
format |
text |
author |
LOU, Yun OTTO, Clemens A. |
author_facet |
LOU, Yun OTTO, Clemens A. |
author_sort |
LOU, Yun |
title |
Debt heterogeneity and covenants |
title_short |
Debt heterogeneity and covenants |
title_full |
Debt heterogeneity and covenants |
title_fullStr |
Debt heterogeneity and covenants |
title_full_unstemmed |
Debt heterogeneity and covenants |
title_sort |
debt heterogeneity and covenants |
publisher |
Institutional Knowledge at Singapore Management University |
publishDate |
2019 |
url |
https://ink.library.smu.edu.sg/soa_research/1800 https://ink.library.smu.edu.sg/context/soa_research/article/2827/viewcontent/Debt_heterogeneity_and_covenants_sv.pdf |
_version_ |
1770574769492590592 |