Download this Paper Open PDF in Browser

Control Rights and Capital Structure: An Empirical Investigation

68 Pages Posted: 12 Feb 2007 Last revised: 13 Dec 2011

Michael R. Roberts

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

Amir Sufi

University of Chicago - Booth School of Business; NBER

Date Written: August 11, 2008

Abstract

We show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy. Net debt issuing activity experiences a sharp and persistent decline following debt covenant violations, when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit. The effect of creditor actions on debt policy is strongest when the borrower's alternative sources of finance are costly. In addition, despite the less favorable terms offered by existing creditors, borrowers rarely switch lenders following a violation.

Keywords: Capital Structure, Financial Policy, Debt, Control Rights, Optimal Contracting

JEL Classification: G32, G21, G31

Suggested Citation

Roberts, Michael R. and Sufi, Amir, Control Rights and Capital Structure: An Empirical Investigation (August 11, 2008). 9th Annual Texas Finance Festival; AFA 2008 New Orleans Meetings. Available at SSRN: https://ssrn.com/abstract=962131 or http://dx.doi.org/10.2139/ssrn.962131

Michael R. Roberts (Contact Author)

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )

3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)

HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/

Amir Sufi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paper statistics

Downloads
1,686
Rank
7,718
Abstract Views
7,051