The Role of Dynamic Renegotiation and Asymmetric Information in Financial Contracting

Michael Roberts ()

No 20484, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using data from SEC filings, I show that the typical bank loan is renegotiated five times, or every nine months. The pricing, maturity, amount, and covenants are all significantly modified during each renegotiation, whose timing is governed by the financial health of the contracting parties and uncertainty regarding the borrowers' credit quality. The relative importance of these factors depends on the duration of the lending relationship. I interpret these results in light of financial contracting theories and emphasize that renegotiation is an important mechanism for dynamically completing contracts and for allocating control rights ex post.

JEL-codes: D82 G21 G23 G32 K12 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-ban and nep-cta
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Michael R. Roberts, 2015. "The role of dynamic renegotiation and asymmetric information in financial contracting," Journal of Financial Economics, vol 116(1), pages 61-81.

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