Debt Renegotiation and Debt Overhang: Evidence from Lender Mergers

Forthcoming, Journal of Financial and Quantitative Analysis

Posted: 20 Apr 2016 Last revised: 11 Dec 2019

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Date Written: August 19, 2019

Abstract

This paper studies whether debt renegotiation mitigates debt overhang and improves investment efficiency. Using mergers between lenders participated in the same syndicated loans as natural experiments that exogenously reduce the number of lenders and thus make renegotiation easier, I find that firms affected by the mergers experience more loan renegotiations and increase capital expenditure investment. I also find that the effect is stronger for firms with higher Q, suggesting improved investment efficiency. Further evidence suggests that the effect concentrates on loans without performance pricing provisions and unsecured loans, providing further support that lender mergers improves investment efficiency for firms suffering from debt overhang ex ante.

Keywords: Debt Overhang, Renegotiation, Syndicated Loan, Underinvestment, Investment Efficiency

JEL Classification: G21, G23, G32, G34, G35

Suggested Citation

Chu, Yongqiang, Debt Renegotiation and Debt Overhang: Evidence from Lender Mergers (August 19, 2019). Forthcoming, Journal of Financial and Quantitative Analysis. Available at SSRN: https://ssrn.com/abstract=2767017 or http://dx.doi.org/10.2139/ssrn.2767017

Yongqiang Chu (Contact Author)

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

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