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http://ssrn.com/abstract=1732364
 
 

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The Role of Dynamic Renegotiation and Asymmetric Information in Financial Contracting


Michael R. Roberts


The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

September 25, 2014


Abstract:     
Using data from SEC filings, I show that the typical bank loan is renegotiated five times, or every nine months. The pricing, maturity, amount, and covenants are all significantly modified during each renegotiation, whose timing is governed by the financial health of the contracting parties and uncertainty regarding the borrowers' credit quality. The relative importance of these factors depends on the duration of the lending relationship. I interpret these results in light of financial contracting theories and emphasize that renegotiation is an important mechanism for dynamically completing contracts and for allocating control rights ex post.

Number of Pages in PDF File: 59

Keywords: Contract Renegotiation, Asymmetric Information, Bank Loans, Financial Contracting

JEL Classification: G21, G32, L14, K12

working papers series





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Date posted: December 31, 2010 ; Last revised: September 30, 2014

Suggested Citation

Roberts, Michael R., The Role of Dynamic Renegotiation and Asymmetric Information in Financial Contracting (September 25, 2014). Available at SSRN: http://ssrn.com/abstract=1732364 or http://dx.doi.org/10.2139/ssrn.1732364

Contact Information

Michael R. Roberts (Contact Author)
The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )
3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)
HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/
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