How Legal and Institutional Environments Shape the Private Debt Renegotiation Process?

62 Pages Posted: 30 Dec 2019

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: December 8, 2019

Abstract

I investigate how legal and institutional conditions around loan origination influence a private debt renegotiation process. Using a large sample of 15,000 loans on the European credit market, I apply a sequential logit model to consider the renegotiation likelihood, the conditional probability of multiple renegotiation rounds or multiple amended terms, and the renegotiation outcomes conditional on specific loan amendments. I find that legal systems with stronger protection of creditors control rights have a positive influence on renegotiation likelihood and favorable outcomes on amendments to amount or maturity. Stronger legal protection reduces renegotiation likelihood when creditors face potential strategic default by shareholders. The legal and institutional environment has a significant effect on how the initial design of the financial contract impacts the renegotiation process.

Keywords: legal systems, institutional environment, financial contracts, private debt, renegotiation, sequential logit, Europe

JEL Classification: G21, G24, G32, G34

Suggested Citation

Godlewski, Christophe J., How Legal and Institutional Environments Shape the Private Debt Renegotiation Process? (December 8, 2019). Available at SSRN: https://ssrn.com/abstract=3500404 or http://dx.doi.org/10.2139/ssrn.3500404

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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