Christophe J. Godlewski: Does the renegotiation of financial contracts matter for firm value? Empirical evidence from Europe

​tiistaina
14.1.2014
klo 10:30

Does the renegotiation of financial contracts matter for firm value? Empirical evidence from Europe

Christophe J. Godlewski
University of Haute Alsace & EM Strasbourg Business School
LaRGE Research Center
PEGE, 61 avenue de la Forêt Noire, 67000 Strasbourg, France
godlewski@unistra.fr ; +33(0)3 68 85 21 21

Abstract
By using a sample of bank loan renegotiations by European firms, I show that the renegotiation of financial contracts matters for firm value. I find that amendments to financial covenants and to loan amounts increase the cumulative abnormal returns of a borrowing firm by 10% to 15%. Early and less frequent renegotiations of bilateral loans with short maturities also imply a positive stock market reaction. Amendments signaling the early accrual of new and positive information allow increasing firm value. The renegotiation of financial contracts bears a certification role, while contracts become more efficient over time, to the benefit of shareholders.

JEL classification: G14, G20
Keywords: renegotiation, financial contracts, bank loans, shareholder value, event studies, Europe