Control Rights and Capital Structure

Download or read book Control Rights and Capital Structure written by Michael R. Roberts and published by . This book was released on 2011 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy. Net debt issuing activity experiences a sharp and persistent decline following debt covenant violations, when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit. The effect of creditor actions on debt policy is strongest when the borrower's alternative sources of finance are costly. In addition, despite the less favorable terms offered by existing creditors, borrowers rarely switch lenders following a violation.