Weak creditor rights introduce contracting frictions and magnify conflicts of interest between borrowers and creditors. We examine the effects of creditor rights on the sensitivity of bank lending terms to aggregate relative to firm-specific information. We formulate two competing hypotheses. On...

Using a large sample of private debt renegotiations from 1996 to 2011, we report that, even in the absence of any covenant violation, debt covenants are frequently renegotiated. These renegotiations primarily relax existing restrictions and result in economically large changes in existing...

We examine the multi-faceted effect of creditor rights on the way banks monitor, operate and finance themselves. We present a simple analytical model that shows that a strengthening of creditor rights reduces the need for banks to monitor their borrowers; and that banks, as a result, tilt their...

The role that banks play in screening and monitoring their borrowers is well understood. However, these bank activities are costly and unobservable, thus difficult to contract upon. This introduces the possibility of shirking and leads to the question – who monitors the monitor? Financial...

While credit risk transfer market dramatically increases the complexity of lender's incentive structure and above all reduces the incentives of the bank to monitor debtor, a ‘harsh' bankruptcy environment (as evidenced in the shift from the debtor controlled to creditor controlled...

Creditors, though, are not regarded as the members of a company, yet the role they play in maintaining a company cannot be denied. They are the sole functionaries of the company, in one word. They provide credit to the company for running its business, as without finance a company holds no...

This paper examines the relationship between three government support measures (debt moratorium, credit guarantee programs, and payroll subsidies) and the firm's payment behavior on loans in Colombia. To do so, we take advantage of the COVID-19 pandemic and use it as a case study. Using highly...

The goal of the Basle II regulatory formula is to model the unexpected loss on a loan portfolio. The regulatory formula is based on an asymptotic portfolio unexpected default rate estimation that is multiplied by an estimate of the loss given default parameter. This simplification leads to a...