Journal of Financial Intermediation Vol. 57 2024
Agree to disagree: Lender equity holdings, within-syndicate conflicts, and covenant design
Abstract
Lenders’ simultaneous equity holdings introduce conflicts of interest among members of syndicated loans. We argue that lenders address such within-syndicate conflicts with financial covenant design to improve contracting efficiency. We show that loans with higher conflicts rely less on performance-based covenants, which serve as tripwires to facilitate ex-post control transfer and require coordination among syndicate members. Instead, high-conflict loans rely more on capital-based covenants to align shareholder-creditor interest ex-ante and incentivize shareholder monitoring. Overall, these results suggest that such conflicts can reduce capital flexibility and renegotiation efficiency for the borrowers.
- DOI
- 10.1016/j.jfi.2023.101065
- Volume
- 57
- Pages
- 101065
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref