The Impact of Renegotiable Debt on Firms

75 Pages Posted: 4 Jun 2018

See all articles by Marc Arnold

Marc Arnold

University of St. Gallen - School of Finance

Ramona Westermann

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2018

Abstract

This paper develops a model to investigate the impact of renegotiable debt on firms. The novel feature is that firms can renegotiate debt both in distress and outside distress, which allows us to rationalize empirical timing patterns of debt renegotiations. We show that this feature is crucial to explain the cross-section of observed credit spreads and the joint distribution of corporate events and the debt control premium. These debt pricing patterns are not captured by existing models. Incorporating both renegotiation events also generates novel testable implications for the impact of renegotiable debt on corporate policies.

Suggested Citation

Arnold, Marc and Westermann, Ramona, The Impact of Renegotiable Debt on Firms (June 4, 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=3190103 or http://dx.doi.org/10.2139/ssrn.3190103

Marc Arnold (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Ramona Westermann

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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