nach oben

Annals of Finance

Erschienen in:

14.09.2022 | Research Article

Bargaining power and renegotiation of small private debt contracts

verfasst von: José Valente, Mário Augusto, José Murteira

Erschienen in: Annals of Finance | Ausgabe 4/2022

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

The present study is focused on the renegotiation of small debt contracts for small and medium-sized enterprises (SMEs). We use a proprietary database from a Brazilian bank and find that, when compared to large loans, the probability of renegotiation of small loans is much lower. We argue that this is due to the lack of ex-ante contingencies in this kind of loan, which reduces the transfer of control to the lender in situations in which the borrower is not in financial distress, and to the lower bargaining power of SMEs when compared to large public companies. We find that borrower delinquency events and borrower bargaining power proxies are positively related to the probability of small loan renegotiation. We also find that delinquency events reduce the probability of borrower-friendly outcomes as well as the number of key contractual terms renegotiated favorably to the borrower. Further, we find that the borrower’s bargaining power increases the likelihood that the borrower will obtain a favorable outcome and a greater number of favorable key contractual terms in the outcome of the renegotiation.

Vorheriger Artikel Some properties of portfolios constructed from principal components of asset returns

Nächster Artikel Dynamic optimal mean-variance portfolio selection with stochastic volatility and stochastic interest rate

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Theoretically, collateral also provides an incentive for the bank to monitor loans (Rajan and Winton 1995). However, collateral is used only in a minor part of the contracts in our sample, with reduced incentive for the bank to monitor this kind of loan.

As will be seen in the next Section, most debt contracts in our sample are unsecured. In such cases, the remaining alternative for the bank to enforce payment is to register the borrower in national credit restriction databases. This makes renegotiation an even more attractive alternative for the bank in the event of missed payments, as it is often the only way for the lender to recover the funds granted.

We use this expression to refer to outcomes that cannot be labeled as favorable to borrowers, but which are not necessarily unfavorable either.

It should be borne in mind that it may be in the bank’s interest to make concessions to the borrower even in a situation where the bank’s bargaining power is absolute, in order to increase the prospect of recovering the funds granted.

Aghion, P., Bolton, P.: An incomplete contract approach to financial contracting. The Rev. Econ. Stud. (1992). https://doi.org/10.2307/2297860CrossRef

Aghion, P., Dewatripont, M., Rey, P.: Renegotiation design with unverifiable information. Econometrica. (1994). https://doi.org/10.2307/2951613CrossRef

Berger, A.N., Udell, G.F.: Collateral, loan quality and bank risk. J. Monet Econ. (1990). https://doi.org/10.1016/0304-3932(90)90042-3CrossRef

Bester, H.: The role of collateral in a model of debt renegotiation. J. Money Credit Bank. (1994). https://doi.org/10.2307/2078035CrossRef

Bolton, P.: Renegotiation and the dynamics of contract design. Eur. Econ. Rev. (1990). https://doi.org/10.1016/0014-2921(90)90102-5CrossRef

Cenni, S., Monferrà, S., Salotti, V., Sangiorgi, M., Torluccio, G.: Credit rationing and relationship lending. Does firm size matter? J. Bank. Financ. (2015). https://doi.org/10.1016/j.jbankfin.2014.12.010CrossRef

Demerjian, P.R.: Uncertainty and debt covenants. Rev Acc. Stud. (2017). https://doi.org/10.1007/s11142-017-9409-zCrossRef

Denis, D.J., Wang, J.: Debt covenant renegotiations and creditor control rights. J. Financ Econ. (2014). https://doi.org/10.1016/j.jfineco.2014.04.003CrossRef

Dewatripont, M., Maskin, E.: Contract renegotiation in models of asymmetric information. Eur. Econ. Rev. (1990). https://doi.org/10.1016/0014-2921(90)90103-6CrossRef

Dou, Y.: The debt-contracting value of accounting numbers and financial covenant renegotiation. Manage. Sci. (2020). https://doi.org/10.1287/mnsc.2018.3276CrossRef

Freudenberg, F., Imbierowicz, B., Saunders, A., Steffen, S.: Covenant violations and dynamic loan contracting. J. Corp. Finance. (2017). https://doi.org/10.1016/j.jcorpfin.2017.05.009CrossRef

Gârleanu, N., Zwiebel, J.: Design and renegotiation of debt covenants. Rev. Financ Stud. (2009). https://doi.org/10.1093/rfs/hhn017CrossRef

Godlewski, C.J.: The dynamics of bank debt renegotiation in Europe: A survival analysis approach. Econ. Model. (2015). https://doi.org/10.1016/j.econmod.2015.03.017CrossRef

Godlewski, C.J.: Debt renegotiation and the design of financial contracts. J. Financial Serv. Res. (2019). https://doi.org/10.1007/s10693-019-00311-xCrossRef

Gorton, G., Kahn, J.: The design of bank loan contracts. Rev. Financ Stud. (2000). https://doi.org/10.1093/rfs/13.2.331CrossRef

Grunert, J., Norden, L.: Bargaining power and information in SME lending. Small Bus. Econ. (2012). https://doi.org/10.1007/s11187-010-9311-6CrossRef

Harris, M., Raviv, A.: The role of games in security design. Rev. Financ Stud. (1995). https://doi.org/10.1093/rfs/8.2.327CrossRef

Hart, O., Moore, J.: Incomplete contracts and renegotiation. Econometrica. (1988). https://doi.org/10.2307/1912698CrossRef

Hart, O., Moore, J.: Default and renegotiation: A dynamic model of debt. Q. J. Econ. (1998). https://doi.org/10.1162/003355302753399436CrossRef

Huberman, G., Kahn, C.M.: Limited contract enforcement and strategic renegotiation.Am. Econ. Rev.(1988a). https://www.jstor.org/stable/1809146

Huberman, G., Kahn, C.M.: Strategic renegotiation. Econ. Lett. (1988b). https://doi.org/10.1016/0165-1765(88)90100-0CrossRef

Ikeda, R., Igarashi, Y.: Credit risk analysis with creditor’s option to extend maturities. Ann. Finance. (2016). https://doi.org/10.1007/s10436-016-0281-9CrossRef

Maskin, E., Moore, J.: Implementation and renegotiation. Rev. Econ. Stud. (1999). https://doi.org/10.1111/1467-937X.00077CrossRef

Moraux, F., Silaghi, F.: Inside debt renegotiation: Optimal debt reduction, timing, and the number of rounds. J. Corp. Finance. (2014). https://doi.org/10.1016/j.jcorpfin.2014.05.012CrossRef

Nikolaev, V.V.: Scope for renegotiation in private debt contracts. J Acc. Econ. (2018). https://doi.org/10.1016/j.jacceco.2017.11.007CrossRef

Nini, G., Smith, D.C., Sufi, A.: Creditor control rights, corporate governance, and firm value. Rev. Financ Stud. (2012). https://doi.org/10.1093/rfs/hhs007CrossRef

Petersen, M.A., Rajan, R.G.: The benefits of lending relationships: evidence from small business data. J. Finance. 49(1), 3–37 (1994). https://doi.org/10.2307/2329133CrossRef

Prilmeier, R.: Why do loans contain covenants? Evidence from lending relationships. J. Financ Econ. (2017). https://doi.org/10.1016/j.jfineco.2016.12.007CrossRef

Rajan, R.G.: Insiders and outsiders: The choice between informed and arm’s-lenght debt. J. Finance. (1992). https://doi.org/10.1111/j.1540-6261.1992.tb04662.xCrossRef

Rajan, R.G., Winton, A.: Covenants and collateral as incentives to monitor. The J. Finance. (1995). https://doi.org/10.1111/j.1540-6261.1995.tb04052.xCrossRef

Roberts, M.R., Sufi, A.: Renegotiation of financial contracts: Evidence from private credit agreements. J. Financ Econ. (2009a). https://doi.org/10.1016/j.jfineco.2008.08.005CrossRef

Roberts, M.R., Sufi, A.: Financial contracting: A survey of empirical research and future directions. Annu. Rev. Financ Econ. (2009b). https://doi.org/10.1146/annurev.financial.071808.145241CrossRef

Roberts, M.R.: The role of dynamic renegotiation and asymmetric information in financial contracting. J. Financ Econ. (2015). https://doi.org/10.1016/j.jfineco.2014.11.013CrossRef

Tirole, J.: Incomplete contracts: Where do we stand? Econometrica (1999). https://doi.org/10.1111/1468-0262.00052

Uchida, H.: Empirical determinants of bargaining power. SSRN Electron. J. (2011). https://doi.org/10.2139/ssrn.954534CrossRef

Titel: Bargaining power and renegotiation of small private debt contracts
verfasst von: José Valente
Mário Augusto
José Murteira
Publikationsdatum: 14.09.2022
Verlag: Springer Berlin Heidelberg
Erschienen in: Annals of Finance / Ausgabe 4/2022
Print ISSN: 1614-2446
Elektronische ISSN: 1614-2454
DOI: https://doi.org/10.1007/s10436-022-00413-y

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2022

Some properties of portfolios constructed from principal components of asset returns

Blind portfolios’ auctions in two-rounds

Dynamic optimal mean-variance portfolio selection with stochastic volatility and stochastic interest rate

Regulatory reform and banking diversity: reassessing Basel 3