How legal and institutional environments shape the private debt renegotiation process?

Abstract

I investigate how legal and institutional conditions around loan origination influence a private debt renegotiation process. Using a large sample of 15,000 loans on the European credit market, I apply a sequential logit model to consider the renegotiation likelihood, the conditional probability of multiple renegotiation rounds or multiple amended terms, and the renegotiation outcomes conditional on specific loan amendments. I find that legal systems with stronger protection of creditors control rights have a positive influence on renegotiation likelihood and favorable outcomes on amendments to amount or maturity. Stronger legal protection reduces renegotiation likelihood when creditors face potential strategic default by shareholders. The legal and institutional environment has a significant effect on how the initial design of the financial contract impacts the renegotiation process.

Public family firms and capital structure: A meta‐analysis

“…Our metaanalysis on the capital structure of public family firms shows that these firms differ from nonfamily firms and that their capital structure is influenced by country-level shareholder and creditor rights. Hence, our study contributes to an important discussion in corporate governance and corporate finance research about how ownership types and differences in national corporate governance systems influence corporate financing and capital structure decisions (e.g., Brailsford et al, 2002;Boubakri & Ghouma, 2010;Godlewski, 2020;Shah, Shah, Smith, & Labianca, 2017). Such an aggregated form of evidence was previously lacking in capital structure research.…”

Private Debt Renegotiation and Financial Institutions’ Network

“…We control for a large number of variables at the loan, syndicate, borrower, and country levels. All these variables are measured at the time of loan origination and are expected to influence the renegotiation process according to the existing literature (Godlewski, 2019a(Godlewski, , 2017Nikolaev, 2018;Saavedra, 2018). We consider main loan terms such as amount, maturity, collateral and covenants 9 and for the amount outstanding and the number of previously issued loans as well as loan origination year, purpose, and currency.…”

“…According to our knowledge, the closest paper is Godlewski et al (2012) who study the influence of lender centrality on loan spreads at origination but do not consider the renegotiation of the initial loan agreements. We complement studies on private debt renegotiation (Godlewski, 2019a(Godlewski, , 2019b(Godlewski, , 2015(Godlewski, , 2014Nikolaev, 2018;Roberts, 2015;Roberts and Sufi, 2009), which do not take the lenders network and centrality into account. We contribute to the literature on the role of connections, networking and reputation in bank lending (Billett et al, 1995;Engelberg et al, 2012;Gatti et al, 2013;McCahery and Schwienbacher, 2010;Ross, 2010) which do not apply social network analysis to compute (deeper and richer) centrality measures of lenders.…”

Loan forbearance takeup in the Covid-era - The role of time preferences and locus of control

“…On the other hand, it can significantly increase the moral hazard, leading to a higher risk of default in the long run. Loan forbearance as a policy tool was found to be highly effective ( Agarwal et al, 2017 ; Collins and Urban, 2018 ), ineffective in the long run ( Dobbie and Song, 2020 ; Bergant, 2020 ), or dependent on the quality of institutions ( Cherry et al, 2021 ; Godlewski, 2020 ; Mourad et al, 2020 ; Piskorski and Seru; 2021 ). Our study contributes to the empirical debate by investigating the borrowers’ side and focusing on the psychological characteristics of those participating in the moratorium.…”