Loan Amendments and Capital Structure

Susanne Espenlaub, Arif Khurshed, Anna Neufeld*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996-2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.
Original languageEnglish
JournalInternational Review of Financial Analysis
Publication statusAccepted/In press - 9 Jan 2025

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