Private debt renegotiation, corporate policies, and performance: empirical evidence from Europe

We investigate the effects of private debt renegotiation on a firm's performance and financial and investment policies. We employ endogenous switching regressions using a large cross-country sample of loans issued and amended over a long-term in Europe. We find that bank loan renegotiation has...

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Bibliographic Details
Published in:Applied economics 2023-11, Vol.55 (51), p.6004-6024
Main Author: Godlewski, Christophe J.
Format: Article
Language:English
Subjects:
Bank loan renegotiation
Bank loans
Certification
Economic theory
Endogenous
Europe
financial policy
General Finance
Investment policy
Negotiation
Quantitative Finance
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Summary:We investigate the effects of private debt renegotiation on a firm's performance and financial and investment policies. We employ endogenous switching regressions using a large cross-country sample of loans issued and amended over a long-term in Europe. We find that bank loan renegotiation has an economically significant and causal impact on financial policy and performance. Renegotiation offers firm added degrees of freedom and unlocks its economic potential, implying significant effects of the firm's tangibility, growth, opportunities, and cash on financial policy and performance. Bank loan renegotiation also shows a certification and signalling effect, which can increase the effect of amendments to the credit agreement on a firm's financial policy.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2022.2141445