Initial Conditions and the Private Debt Renegotiation Process

59 Pages Posted: 3 Feb 2017

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: January 9, 2017

Abstract

I investigate whether and how initial conditions around loan origination influence private debt renegotiation process. I model the renegotiation likelihood, and the conditional probability of multiple renegotiation rounds or multiple amended terms using a sequential logit model. I use a large sample of 15,000 loans on the European credit market. I find that contractual (covenants and collateral) and organizational (lenders pool size, reputation and relationship) mechanisms mitigating adverse selection and moral hazard risks have the largest and positive economic impacts. Lenders financial conditions (capitalization and credit portfolio exposure) and institutional arrangement aiming at creditors protection significantly impact the renegotiation process.

Keywords: Financial Contracts, Private Debt, Renegotiation, Sequential Logit, Europe

JEL Classification: G21, G24, G32, G34

Suggested Citation

Godlewski, Christophe J., Initial Conditions and the Private Debt Renegotiation Process (January 9, 2017). Available at SSRN: https://ssrn.com/abstract=2910032 or http://dx.doi.org/10.2139/ssrn.2910032

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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