Creditor Intervention, Investment and Growth Opportunities

41 Pages Posted: 2 Oct 2010 Last revised: 4 Dec 2015

See all articles by Beatriz Mariano

Beatriz Mariano

Humboldt University of Berlin - Institute of Finance

Josep A. Tribo

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: August 26, 2014

Abstract

We show that creditors do not just ensure that inefficient investment is not undertaken, but also do not preclude efficient investment. Examining what happens following a debt covenant violation, a situation through which creditors acquire some control rights over the firm, we find that investment declines when the firm has few growth opportunities but it may increase otherwise. The results are robust to the use of different proxies for growth opportunities. The firm’s performance improves but it suffers dividend cuts and increased CEO turnover. The results suggest that creditors consider the benefits of growth opportunities as a source of future cash flows to meet outstanding debt obligations.

Keywords: Creditor control rights, Growth opportunities, Investment, Performance

JEL Classification: G21, G32

Suggested Citation

Mariano, Beatriz and Tribo Gine, Josep Antonio, Creditor Intervention, Investment and Growth Opportunities (August 26, 2014). Mariano, B. & Tribó, JA. (2014), "Creditor Intervention, Investment, and Growth Opportunities". Journal of Financial Services Research (2015), 47, 203-228. Available at SSRN: https://ssrn.com/abstract=1685910 or http://dx.doi.org/10.2139/ssrn.1685910

Beatriz Mariano (Contact Author)

Humboldt University of Berlin - Institute of Finance ( email )

Spandauer Str. 1
Berlin, 10099
Germany

Josep Antonio Tribo Gine

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain
34-916249321 (Phone)

HOME PAGE: http://www.business.uc3m.es/en/faculty/profesor/perfil/josep-a-tribo

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