Renegotiation Costs and Debt Contract Design

• 成果类型: Article; Early Access
• 署名作者: Dyreng, Scott D.; Ferracuti, Elia; Morris, Arthur K.
• 署名单位: Duke University; Hong Kong University of Science & Technology
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2023-0418
• 发表日期: 2025
• 关键词: tax benefits; covenants; INFORMATION; determinants; maturity

摘要

We examine the relation between debt contract renegotiation costs and contract design. We use plausibly exogenous shock to expected renegotiation costs arising from a change in the taxation of debt renegotiations to show that, as renegotiation costs decline, the maturity of debt contracts lengthens, the initial likelihood of covenant violation increases, and the use of performance pricing provisions becomes less frequent. The evidence indicates that ex ante allocation of cash flow rights and ex post reallocation of decision rights through renegotiation are local substitutes, where the preference for one mechanism versus the other depends, at least part, on renegotiation costs.