Investment-based financing constraints and debt renegotiation
We consider how equity holders’ bargaining power during financial distress influences the interactions between financing and investment decisions when the firm faces the upper limit of debt issuance. We obtain four results. First, weaker equity holders’ bargaining power is more likely that the firm...
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Published in | Journal of banking & finance Vol. 51; pp. 79 - 92 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
01.02.2015
Elsevier Sequoia S.A |
Subjects | |
Online Access | Get full text |
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Summary: | We consider how equity holders’ bargaining power during financial distress influences the interactions between financing and investment decisions when the firm faces the upper limit of debt issuance. We obtain four results. First, weaker equity holders’ bargaining power is more likely that the firm is financially constrained. Second, the investment quantity is independent of equity holders’ bargaining power. Third, the constrained credit spreads are increasing with equity holders’ bargaining power, contrary to the unconstrained ones. Fourth, higher volatility and weaker equity holders’ bargaining power are likely that the firm prefers to issue debt with renegotiation, compared with debt without renegotiation. |
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Bibliography: | ObjectType-Article-1 SourceType-Scholarly Journals-1 ObjectType-Feature-2 content type line 23 |
ISSN: | 0378-4266 1872-6372 |
DOI: | 10.1016/j.jbankfin.2014.11.005 |