Publication Type

Journal Article

Publication Date

8-2015

Abstract

We examine the determinants of events of default clauses in syndicated loan and bond contracts, provi- sions that allow lenders to request the repayment of principal and to terminate lending commitments. We document significant variation in the use of default clauses and their restrictiveness within the same type of lending contract but also across loans and bonds. We find that default clauses in public bond contracts are less restrictive than those in syndicated loan contracts. We also document that two ex ante proxies for bankruptcy costs, the level of intangible assets and capitalized research and development expenditures at the time of debt contracting, are associated with less restrictive default clauses, especially in bond contracts. We conclude that bondholders attempt to mitigate the occurrence of inefficient defaults. Given their inability to coordinate with each other and their ownership of subordinated claims, bondholders incur higher default costs than bank lenders.

Keywords

Events of default, Default clauses, Loan contracts, Bond contracts, Cross-default

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Review of Accounting Studies

Volume

20

Issue

4

First Page

1596

Last Page

1637

ISSN

1380-6653

Identifier

10.1007/s11142-015-9337-8

Publisher

Springer Verlag (Germany)

Additional URL

http://doi.org/10.1007/s11142-015-9337-8

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