What Drives the Dynamics of Bank Loan Renegotiation in Europe?
44 Pages Posted: 2 May 2013
Date Written: May 1, 2013
I investigate the determinants of the duration between bank loan renegotiations using a sample of 1 600 amendments to private debt contracts in Europe. The median duration between loan amendments equals one year, although frequently renegotiated contracts are amended every five months. Employing a stratified Cox-type hazard model, I find that initial loan terms, banking pool features, amendments’ characteristics and legal environment significantly influence the duration time between renegotiations. Contract complexity, informational frictions in the borrower-lender relationship, uncertainty of the economic environment and legal protection of creditors play a major role in shaping the dynamics of bank loan renegotiation.
Keywords: renegotiation process, bank loans, multiple failure-time data, Cox model, Europe
JEL Classification: C41, G14, G20
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