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Does renegotiation of financial contracts matter for shareholders? Empirical evidence from Europe

Christophe Godlewski ()

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: Using a large sample of bank loan renegotiations by European firms, I show that renegotiation of financial contracts matters for shareholders and can increase their wealth. I find that amendments to financial covenants and to loan amounts increase borrower’s cumulative abnormal return by 10% to 15%. Early and less frequent renegotiations of bilateral loans with short maturity also imply a positive stock market reaction. Amendments signaling the early accrual of new, valuable and positive information allow increasing shareholders value. The renegotiation of financial contracts bears a certification role as contracts become more efficient over time, to the benefits of the shareholders.

Keywords: renegotiation; financial contracts; bank loans; shareholders value; event studies; Europe. (search for similar items in EconPapers)
JEL-codes: G14 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-eur
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2013-03

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