Benign neglect of covenant violations : blissful banking or ignorant monitoring? / Stefano Colonnello, Michael Koetter, Moritz Stieglitz
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Discovery
1047457113
URN
urn:nbn:de:gbv:3:2-102012
DOI
ISBN
ISSN
Autorin / Autor
Beiträger
Körperschaft
Erschienen
Halle (Saale), Germany : Halle Institute for Economic Research (IWH) - Member of the Leibniz Association, [22. Januar 2019]
Umfang
1 Online-Ressource (III, 54 Seiten, 0,9 MB) : Diagramme
Ausgabevermerk
Sprache
eng
Anmerkungen
Inhaltliche Zusammenfassung
Theoretically, bank's loan monitoring activity hinges critically on its capitalisation. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalised banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.
Schriftenreihe
IWH-Diskussionspapiere ; 2019, no. 3 (January 2019) ppn:837399270