Multiple Lenders, Temporary Debt Restructuring, and Firm Performance: Evidence from Contract-Level Data
32 Pages Posted: 2 Feb 2016
Date Written: January 2016
This paper empirically examines the cause and consequence of private debt restructuring out of court. Using a unique contract-level data accounting for Japanese bank loan, we employ probit and multinomial logit estimations to study how demand and approval of debt restructuring are determined, as well as under what conditions one specific form of debt restructuring – temporary debt restructuring – is utilized. The results of our estimations show, first, that the demand of debt restructuring was systematically associated with firm characteristics and the relation-specific characteristics (esp., number of lender banks). Second, debt restructurings was more likely to take “temporary” form when the number of lender banks was larger. Using propensity score matching difference-in-difference estimation, we also find that the performance of firms experiencing temporary debt restructuring significantly deteriorated in the comparison with that of firms experiencing non-temporary debt restructuring. These results imply that temporary debt restructuring during our sample period was mainly used as de fact evergreening lending, which ended up the deterioration of borrower creditworthiness.
Keywords: Debt restructuring; Number of banks; Firm performance; Evergreening lending
JEL Classification: G21, G32, K12, L14, D82
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