TY - JOUR
T1 - Creditor Intervention, Investment, and Growth Opportunities
AU - Mariano, Beatriz
AU - Tribó Giné, Josep A.
N1 - Publisher Copyright:
© 2014, Springer Science+Business Media New York.
PY - 2015/4
Y1 - 2015/4
N2 - We show that creditors do not just ensure that inefficient investment is not undertaken, but also do not preclude efficient investment. Examining what happens following a debt covenant violation, a situation through which creditors acquire some control rights over the firm, we find that investment declines when the firm has few growth opportunities but it may increase otherwise. The results are robust to the use of different proxies for growth opportunities. The firm’s performance improves but it suffers dividend cuts and increased CEO turnover. The results suggest that creditors consider the benefits of growth opportunities as a source of future cash flows to meet outstanding debt obligations.
AB - We show that creditors do not just ensure that inefficient investment is not undertaken, but also do not preclude efficient investment. Examining what happens following a debt covenant violation, a situation through which creditors acquire some control rights over the firm, we find that investment declines when the firm has few growth opportunities but it may increase otherwise. The results are robust to the use of different proxies for growth opportunities. The firm’s performance improves but it suffers dividend cuts and increased CEO turnover. The results suggest that creditors consider the benefits of growth opportunities as a source of future cash flows to meet outstanding debt obligations.
KW - Covenants
KW - Growth opportunities
KW - Investment
KW - Performance
KW - Syndicated loans
UR - http://www.scopus.com/inward/record.url?scp=84891652293&partnerID=8YFLogxK
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U2 - 10.1007/s10693-013-0188-9
DO - 10.1007/s10693-013-0188-9
M3 - Article
AN - SCOPUS:84891652293
SN - 0920-8550
VL - 47
SP - 203
EP - 228
JO - Journal of Financial Services Research
JF - Journal of Financial Services Research
IS - 2
ER -