The Influence of Creditor Governance on Firms

Abstract

This paper develops a model to explore the implications of creditor governance on debt prices and corporate policies. The model incorporates the empirical observation that creditors can influence firms outside corporate distress and not only in distress. We find that considering both distressed and non-distressed creditor interventions is key to investigating how creditors influence firms. The model explains cross-sectional patterns of credit spreads and control premiums that traditional debt renegotiation models do not capture. We also derive novel implications for the impact of firm characteristics associated with renegotiation on debt prices and corporate policies.

Keywords: Debt Renegotiation, Creditor Governance, Debt Pricing

JEL Classification: D92, E44, G12, G32, G33