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Structure and Determinants of Financial Covenants in Leveraged BuyoutsAnn-Kristin AchleitnerTechnische Universität München - Center for Entrepreneurial and Financial Studies Reiner BraunTechnische Universität München - Center for Entrepreneurial and Financial Studies Bastian HinterramskoglerTechnische Universität München - Center for Entrepreneurial and Financial Studies (CEFS) Florian TappeinerTechnische Universität München - Center for Entrepreneurial and Financial Studies August 20, 2010 Review of Finance, 2011 (First Published Online March 1, 2011) Abstract: We use a proprietary dataset to explore (i) the financial covenant structure and (ii) the determinants of their restrictiveness in leveraged buyouts. With respect to (i) we find that the covenant structure is more standardized in sponsored than in non-sponsored loans: the former show less variation in the included types and combinations of covenants and include more financial covenants than the latter. With respect to (ii) we measure financial covenant restrictiveness precisely as the distance between threshold and financial forecast. We show that two competing mechanisms, reduced information asymmetry costs and increased financial risk, affect the restrictiveness in sponsored loans.
Number of Pages in PDF File: 53 Keywords: Financial covenants, leveraged buyouts, financing structure, control rights JEL Classification: G21, G24, G32, G34 Accepted Paper SeriesDate posted: December 14, 2009 ; Last revised: July 22, 2011Suggested CitationContact Information
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