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Creditor Control Rights and the Pricing of Corporate Loans

Author

Listed:
  • Marc Arnold

    (University of St. Gallen and Swiss Finance Institute)

  • Nicola Kollman

    (University of St. Gallen)

  • Angel Tengulov

    (University of Kansas)

Abstract

This study investigates the influence of creditor control rights on the pricing of corporate loans. We construct a novel dataset that combines hand-collected covenant violations data with individual borrowers, creditors, and loan contract information. Our data allows us to distinguish between creditors who receive direct control rights after a covenant violation and creditors who do not receive control rights after a violation. By comparing the loan terms of these two creditor types, we can isolate the impact of creditor control rights on loan pricing from that of other factors related to a covenant violation. We find that creditors exploit control rights to overprice new loans, and that this rent extraction is a key determinant of the loan premium puzzle.

Suggested Citation

  • Marc Arnold & Nicola Kollman & Angel Tengulov, 2023. "Creditor Control Rights and the Pricing of Corporate Loans," Swiss Finance Institute Research Paper Series 23-35, Swiss Finance Institute, revised Jun 2023.
    • Handle: RePEc:chf:rpseri:rp2335
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    More about this item

    Keywords

    Loan Pricing; Creditor Governance; Creditor Control Spread;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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