The certification value of private debt renegotiation and the design of financial contracts: Empirical evidence from Europe

Christophe Godlewski

Journal of Banking & Finance, 2015, vol. 53, issue C, 1-17

Abstract: By using a sample of bank loan renegotiations by European firms, I show that the renegotiation of financial contracts bears a certification value, while deeply changing the contractual features of the loan over time, to the benefit of shareholders. I find that amendments to financial covenants and to loan amounts increase the cumulative abnormal returns of a borrowing firm by 10–15%. Early and less frequent renegotiations of bilateral loans with short maturities also imply a positive stock market reaction. Amendments signaling the early accrual of new and positive information allow increasing firm value.

Keywords: Renegotiation; Financial contracts; Bank loans; Certification; Shareholder value; Event studies; Europe (search for similar items in EconPapers)
JEL-codes: G14 G20 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Working Paper: The certification value of private debt renegotiation and the design of financial contracts: Empirical evidence from Europe (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:53:y:2015:i:c:p:1-17

DOI: 10.1016/j.jbankfin.2014.12.006

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