Does Renegotiation of Financial Contracts Matter for Shareholders? Empirical Evidence from Europe

44 Pages Posted: 16 Nov 2012

See all articles by Christophe J. Godlewski

Christophe J. Godlewski

University of Strasbourg - Faculty of Law and Business; EM Strasbourg Business School; LaRGE Research Center

Date Written: November 14, 2012

Abstract

Using a large sample of bank loan renegotiations by European firms, I show that renegotiation of financial contracts matters for shareholders and can increase their wealth. I find that amendments to financial covenants and to loan amounts increase borrower’s cumulative abnormal return by 10% to 15%. Early and less frequent renegotiations of bilateral loans with short maturity also imply a positive stock market reaction. Amendments signaling the early accrual of new, valuable and positive information allow increasing shareholders value. The renegotiation of financial contracts bears a certification role as contracts become more efficient over time, to the benefits of the shareholders.

Keywords: renegotiation, financial contracts, bank loans, shareholders value, event studies, Europe

JEL Classification: G14, G20

Suggested Citation

Godlewski, Christophe J., Does Renegotiation of Financial Contracts Matter for Shareholders? Empirical Evidence from Europe (November 14, 2012). Available at SSRN: https://ssrn.com/abstract=2175535 or http://dx.doi.org/10.2139/ssrn.2175535

Christophe J. Godlewski (Contact Author)

University of Strasbourg - Faculty of Law and Business ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

EM Strasbourg Business School ( email )

61 Avenue de la Forêt Noire
Strasbourg, 67000
France

HOME PAGE: http://www.em-strasbourg.eu/

LaRGE Research Center ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

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