The Technical Default Spread

• 成果类型: Article
• 署名作者: Bisetti, Emilio; Li, Kai; Yu, Jun
• 署名单位: Hong Kong University of Science & Technology; Peking University Shenzhen Graduate School (PKU Shenzhen); Peking University; University of Melbourne
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhae042
• 发表日期: 2024
• 页码: 3386
• 关键词: CREDITOR CONTROL RIGHTS; cross-section; AGENCY COSTS; macroeconomic model; capital structure; Distress risk; net worth; constraints; RESOLUTION; determinants

摘要

We study the quantitative impact of lender control rights on corporate investment, asset prices, and the aggregate economy. We build a general equilibrium model in which the breaching of a loan covenant (technical default) entails a switch in investment control rights from borrowers to lenders. Lenders optimally choose low-risk projects, thus mitigating borrowers' risk-taking incentives and lowering the cost of equity. This mechanism generates strong macroeconomic effects and mitigates the financial accelerator. Consistent with our model, proximity to technical default in the data is associated with 4.12% lower returns and lower exposure to systematic risk.