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Debt Renegotiation and Debt Overhang: Evidence from Lender Mergers

Published online by Cambridge University Press:  26 September 2019

Yongqiang Chu Open the ORCID record for Yongqiang Chu [Opens in a new window]
Yongqiang Chu*
Affiliation:
Chu, [email protected], University of North Carolina Belk College of Business
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Abstract

This article studies whether debt renegotiation mitigates debt overhang and increases corporate investment. Using mergers between lenders participating in the same syndicated loans as natural experiments that reduce the number of lenders and thus make renegotiation easier, I find that the firms affected by the mergers become more likely to renegotiate the loans and increase capital investment. The effect is stronger for firms with higher Q and firms in financial distress, supporting the hypothesis that the lender mergers mitigate the debt-overhang problem.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 3 , May 2021 , pp. 995 - 1021
Copyright
© Michael G. Foster School of Business, University of Washington 2019

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Footnotes

*

The author thanks Li An, Nikolaos Artavanis, Jinhui Bai, Huafeng (Jason) Chen, Jiandong Ju, Bo Li, Bing Liang, Daniel Neuhann, Mila Getmansky Sherman, Zhan Shi, Huan Yang, Hong Zhang, Xiaoyan Zhang, Hongda Zhong, Hao Zhou, and seminar participants at the 2017 Financial Management Association (FMA) Meeting, the 2018 China International Conference in Finance (CICF), the University of Massachusetts at Amherst, PBC School of Finance, and Renmin University for helpful comments.

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