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Creditor Intervention, Investment, and Growth Opportunities

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  • Beatriz Mariano
  • Josep Tribó Giné

Abstract

We show that creditors do not just ensure that inefficient investment is not undertaken, but also do not preclude efficient investment. Examining what happens following a debt covenant violation, a situation through which creditors acquire some control rights over the firm, we find that investment declines when the firm has few growth opportunities but it may increase otherwise. The results are robust to the use of different proxies for growth opportunities. The firm’s performance improves but it suffers dividend cuts and increased CEO turnover. The results suggest that creditors consider the benefits of growth opportunities as a source of future cash flows to meet outstanding debt obligations. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Beatriz Mariano & Josep Tribó Giné, 2015. "Creditor Intervention, Investment, and Growth Opportunities," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 203-228, April.
    • Handle: RePEc:kap:jfsres:v:47:y:2015:i:2:p:203-228
    DOI: 10.1007/s10693-013-0188-9
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    More about this item

    Keywords

    Covenants; Growth opportunities; Investment; Performance; Syndicated loans; G21; G32;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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