Journal of Financial Intermediation Vol. 26 2016
Hold-up and the use of performance-sensitive debt
open access
Abstract
We examine whether performance-sensitive debt (PSD) is used to reduce hold-up problems in long-term lending relationships. We find that the use of PSD is more common in the presence of a long-term lending relationship and if the borrower has fewer financing alternatives available. In syndicated deals, however, the presence of a relationship lead arranger reduces the use of PSD because a lead arranger has little incentive to hold-up a client. Further supporting the hypothesis that hold-up concerns motivate the use of PSD, we find a substitution effect between the use of PSD and the tightness of financial covenants.
- DOI
- 10.1016/j.jfi.2016.01.004
- Volume
- 26
- Pages
- 47-67
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref