Debt Structure as a Strategic Bargaining Tool
69 Pages Posted: 11 Apr 2016 Last revised: 17 Oct 2017
Date Written: October 8, 2017
In this paper, I examine the strategic role of debt structure in improving the bargaining position of a firm’s management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining because it affects the ease of renegotiating debt contracts and thus the credibility of bankruptcy threats. Using a regression discontinuity design, I show that debt structure is adjusted toward debt that is more difficult to renegotiate in response to an increase in employees’ negotiation power. Further analyses confirm that the debt structure adjustments are more likely driven by the strategic concerns of management, rather than by other explanations.
Keywords: Labor Union, Bankruptcy Cost, Debt Structure, Regression Discontinuity Design
JEL Classification: G30, G32, G33, J31, J51
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