Debt Flexibility

Rhys Bidder, Nicolas Crouzet (), Margaret Jacobson and Michael Siemer
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Nicolas Crouzet: https://www.kellogg.northwestern.edu/faculty/crouzet/html/index.html

No 2023-076r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: How flexible are corporate loans after origination? Theory predicts coordination problems should make syndicated loans harder to modify than single-bank loans. We show the opposite. Using comprehensive regulatory data, we document that syndicated loans are modified frequently and respond to borrower distress, while single-lender loans are half as likely to be modified. This gap is not explained by covenants or performance pricing. Instead, syndicated loans are monitored more intensively. We show theoretically and empirically how fixed monitoring costs generate scale economies: larger loans justify continuous monitoring enabling flexible renegotiation, while smaller borrowers receive arm’s-length contracts with limited scope for modifications.

Keywords: Corporate debt; Renegotiation; SME lending; Relationship lending (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Pages: 103 p.
Date: 2023-11-29, Revised 2026-03-02
New Economics Papers: this item is included in nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-76

DOI: 10.17016/FEDS.2023.076r1

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