How Does Lender Health Affect Covenant-Violating Borrowers?

53 Pages Posted: 4 Jul 2019

See all articles by MingMing Ao

MingMing Ao

Texas A&M University - Department of Finance

Jack Bao

University of Delaware - Department of Finance

Adam C. Kolasinski

Texas A&M University - Department of Finance

Date Written: July 2, 2019

Abstract

Using the Emerging Market Debt Crises of the late 1990s, a shock that directly impacted some U.S. banks but not their domestic borrowers, we study the causal impact of lender health on covenant-violating borrowers. Using difference-in-differences, we find that banks exposed to the crises become relatively more likely to be stringent with covenant violators. Such stringency has real effects, as covenant violators become more likely to suffer a distressed delisting if their lenders are crisis-exposed. We also find effects for lender health on borrower investments, but these effects are not specific to covenant-violating borrowers.

Keywords: Bank loan covenants, corporate debt structure, contingent control rights, financial distress, bank capital, bank regulation, cross-border crisis transmission

JEL Classification: G32,G31,G33,G21,G28

Suggested Citation

Ao, MingMing and Bao, Jack and Kolasinski, Adam C., How Does Lender Health Affect Covenant-Violating Borrowers? (July 2, 2019). Mays Business School Research Paper No. 3413860, Available at SSRN: https://ssrn.com/abstract=3413860 or http://dx.doi.org/10.2139/ssrn.3413860

MingMing Ao

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States

Jack Bao

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Adam C. Kolasinski (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
68
Abstract Views
490
rank
370,995
PlumX Metrics