Les Cahiers de Recherche - HEC Paris
Debt Structure Dispersion and Loan Covenants
() and Clemens Otto
Abstract: This paper examines the effect of dispersion in firms'
existing debt structures on the use of covenants in new loans. The authors
find that more covenants are included when the existing debt is more
dispersed. This result is consistent with the idea that dispersed debt
structures harbor a greater potential for conflicts among creditors, so
that new lenders demand additional covenants. Consistent with the notion
that creditor conflicts matter most in case of default and are aggravated
by information asymmetries, they find that the effect of debt structure
dispersion is strongest for firms with high default risk and opaque
Keywords: Debt Dispersion; Loan Covenants; Debt Contract Terms; Debt Structure; (follow links to similar papers)
JEL-Codes: G32; (follow links to similar papers)
45 pages, November 4, 2014
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