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Debt renegotiation and the design of financial contracts

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  • Christophe J. GODLEWSKI

    (LaRGE Research Center, Université de Strasbourg)

Abstract

I study the impact of bank loan renegotiation on the design of financial contracts. Debt renegotiation can be beneficial for borrowers and lenders but its impact on the design of financial contracts is less clear. However, contract design is crucial for borrower’s investment, operating and financing policies. I find that the design of renegotiated credit agreements is not homogenous. Main renegotiation packages contain amendments to loan amount and maturity. I show that secured loans with longer maturities experience broader amendments. Creditors’ friendly environment and the presence of reputable, sound, and profitable lenders have a similar effect.

Suggested Citation

  • Christophe J. GODLEWSKI, 2016. "Debt renegotiation and the design of financial contracts," Working Papers of LaRGE Research Center 2016-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2016-03
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    Cited by:

    1. Godlewski, Christophe J., 2020. "How legal and institutional environments shape the private debt renegotiation process?," Journal of Corporate Finance, Elsevier, vol. 62(C).
    2. Jiang, Jinglu & Liu, Bo & Yang, Jinqiang, 2019. "The impact of debt restructuring on firm investment: Evidence from China," Economic Modelling, Elsevier, vol. 81(C), pages 325-337.
    3. Shu Feng & Chang Liu & Xiaoling Pu, 2022. "Connected Lending in Bank Lines of Credit," Journal of Financial Services Research, Springer;Western Finance Association, vol. 61(2), pages 187-216, April.
    4. Ana Lozano-Vivas & Edward Simpson Prescott, 2019. "Introduction to the Special Issue," Journal of Financial Services Research, Springer;Western Finance Association, vol. 55(2), pages 111-113, June.
    5. Christophe J. GODLEWSKI & Bulat SANDITOV, 2020. "Private debt renegotiation and financial institutions' network," Working Papers of LaRGE Research Center 2020-01, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    6. Christophe J. GODLEWSKI, 2017. "Initial conditions and the private debt renegotiation process," Working Papers of LaRGE Research Center 2017-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    7. José Valente & Mário Augusto & José Murteira, 2022. "Bargaining power and renegotiation of small private debt contracts," Annals of Finance, Springer, vol. 18(4), pages 485-510, December.
    8. Duran, Miguel A., 2022. "The risk–return relation in the corporate loan market," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    financial contracts design; bank loans; debt renegotiation.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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