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How legal and institutional environments shape the private debt renegotiation process?

Christophe Godlewski ()

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

Abstract: I investigate how legal and institutional conditions around loan origination influence a private debt renegotiation process. Using a large sample of 15,000 loans on the European credit market, I apply a sequential logit model to consider the renegotiation likelihood, the conditional probability of multiple renegotiation rounds or multiple amended terms, and the renegotiation outcomes conditional on specific loan amendments. I find that legal systems with stronger protection of creditors control rights have a positive influence on renegotiation likelihood and favorable outcomes on amendments to amount or maturity. Stronger legal protection reduces renegotiation likelihood when creditors face potential strategic default by shareholders. The legal and institutional environment has a significant effect on how the initial design of the financial contract impacts the renegotiation process.

Keywords: legal systems; institutional environment; financial contracts; private debt; renegotiation; sequential logit; Europe (search for similar items in EconPapers)
JEL-codes: G21 G24 G32 G34 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-law and nep-ore
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Journal Article: How legal and institutional environments shape the private debt renegotiation process? (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2019-08

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