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Event risk covenants

Author

Listed:
  • Heidorn, Thomas
  • Jaster, Oliver
  • Willeitner, Ulrich

Abstract

Merger and acquisition activities can have a strong impact on the capital structure of the companies involved and therefore on the value of debt. This paper discusses the role of covenants within debt contracts. Using the Real Option approach to quantify the implications of covenants on the value of the company, it can be shown that covenants do not necessarily reduce the risk of debt lender. The value of the company is determined by assets in place and management decisions in the future. Any limitation of the management might reduce the value of the company and therefore the value of debt.

Suggested Citation

  • Heidorn, Thomas & Jaster, Oliver & Willeitner, Ulrich, 2001. "Event risk covenants," Frankfurt School - Working Paper Series 30, Frankfurt School of Finance and Management.
    • Handle: RePEc:zbw:fsfmwp:30
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    Cited by:

    1. Inklaar, Robert & Koetter, Michael & Noth, Felix, 2012. "Who's afraid of big bad banks? Bank competition, SME, and industry growth," Frankfurt School - Working Paper Series 197, Frankfurt School of Finance and Management.
    2. Dietmar Harhoff & Elisabeth Mueller & John Van Reenen, 2014. "What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 204-224, March.
    3. Boeing, Philipp & Mueller, Elisabeth & Sandner, Philipp, 2012. "What makes Chinese firms productive? Learning from indigenous and foreign sources of knowledge," Frankfurt School - Working Paper Series 196, Frankfurt School of Finance and Management.
    4. Kostka, Genia & Moslener, Ulf & Andreas, Jan G., 2011. "Barriers to energy efficiency improvement: Empirical evidence from small-and-medium sized enterprises in China," Frankfurt School - Working Paper Series 178, Frankfurt School of Finance and Management.
    5. Alexander Libman & Vladimir Kozlov & André Schultz, 2012. "Roving Bandits in Action: Outside Option and Governmental Predation in Autocracies," Kyklos, Wiley Blackwell, vol. 65(4), pages 526-562, November.
    6. Yu, Xiaofan, 2011. "A spatial interpretation of the persistency of China's provincial inequality," Frankfurt School - Working Paper Series 171, Frankfurt School of Finance and Management.
    7. Böing, Philipp & Müller, Elisabeth, 2012. "Technological Capabilities of Chinese Enterprises: Who is Going to Compete Abroad?," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62081, Verein für Socialpolitik / German Economic Association.

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