Scope for Renegotiation in Private Debt Contracts

Valeri V. Nikolaev

University of Chicago - Booth School of Business

March 30, 2013

Frequent contract renegotiation is a puzzling phenomenon. I study whether debt contract renegotiation can be explained by contracting frictions and the associated contract design choices. In line with theory, the scope for renegotiation is higher among companies with higher uncertainty, greater agency conflicts, and lower information frictions. Syndicate size and performance pricing are associated with a lower scope for renegotiation. The opposite is true for creditor control rights that include restrictions on managerial actions, covenants, and borrowing bases. This result is consistent with strategic control allocation triggering renegotiation. The findings are also consistent with renegotiation having ex ante efficiency implications.

Number of Pages in PDF File: 49

Keywords: contract renegotiation, time to renegotiation, contract design

JEL Classification: G32

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Date posted: March 2, 2012 ; Last revised: April 2, 2013

Suggested Citation

Nikolaev , Valeri V., Scope for Renegotiation in Private Debt Contracts (March 30, 2013). Available at SSRN: http://ssrn.com/abstract=2012526 or http://dx.doi.org/10.2139/ssrn.2012526

Contact Information

Valeri V. Nikolaev (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 South Woodlawn Avenue
Chicago, IL 60637
United States
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