Hold-up and the use of performance-sensitive debt

Tim R. Adam and Daniel Streitz

Journal of Financial Intermediation, 2016, vol. 26, issue C, 47-67

Abstract: We examine whether performance-sensitive debt (PSD) is used to reduce hold-up problems in long-term lending relationships. We find that the use of PSD is more common in the presence of a long-term lending relationship and if the borrower has fewer financing alternatives available. In syndicated deals, however, the presence of a relationship lead arranger reduces the use of PSD because a lead arranger has little incentive to hold-up a client. Further supporting the hypothesis that hold-up concerns motivate the use of PSD, we find a substitution effect between the use of PSD and the tightness of financial covenants.

Keywords: Performance-sensitive debt; Relationship lending; Hold-up; Holdout; Syndicated debt; Covenants (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Working Paper: Hold-Up and the Use of Performance-Sensitive Debt (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:26:y:2016:i:c:p:47-67

DOI: 10.1016/j.jfi.2016.01.004

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