Hold-Up and the Use of Performance-Sensitive Debt

Adam, Tim R. und Streitz, Daniel (2014): Hold-Up and the Use of Performance-Sensitive Debt. SFB/TR 15 Discussion Paper No. 476

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, which is consistent with hold-up being of lesser concern in such cases. Further, supporting our 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.

• Item Type: Paper
• Keywords: Performance-sensitive debt, relationship lending, hold-up, holdout, syndicated debt, covenants
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B8 - Reputation in der Zertifizierungsindustrie
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: G21, G31, G32
• Language: English