We collect data on ranges of hypothetical asset liquidation values disclosed in U.S. Bankruptcy Court filings. We use this historical information to construct a firm-specific measure, “RecRisk,” which captures asset recovery risk through the uncertainty surrounding asset valuations in liquidation events. We document that higher RecRisk is associated with smaller syndicated loan amounts as a percentage of available collateral, more and tighter performance covenants, and increased loan spreads for borrowers with high credit risk. High RecRisk borrowers also experience lower secondary loan market prices and reduced liquidity for loans with high credit risk. When borrowers become financially distressed, high RecRisk is further associated with declining loan prices and reduced ownership by Collateralized Loan Obligations, the dominant investors in the leveraged loan market. Overall, our results indicate that loan contract terms and prices reflect recovery risk faced by lenders.
Data Availability: Data are available from the sources cited in the text. The authors can provide the RecRisk measure at the firm-year level upon request.
JEL Classifications: M41; G32; G34; G12; G21; G33.
We find that banking relationships built through institutional cross‐ownership influence the granting of loans as well as loan contract terms. Firms that are newly added to institutional cross‐owners' portfolios are more likely to borrow from banks that previously issued loans to other firms within the same portfolio...
Zhi-Ming Ma, E. Owens, D. Stice et al.· Contemporary Accounting Rese...· 0 citations
Despite persistent academic and regulatory concerns, collateralized loan obligations (CLOs) have consistently demonstrated resiliency over the past two decades. We document that firms whose loans are acquired by CLOs are less likely to experience adverse credit events within 12 months of inclusion in the CLO portfoli...
This paper investigates the optimal design of information disclosure at debt rollover to maximize an entrepreneur’s ex ante borrowing capacity and social welfare. We develop a model where an entrepreneur secures a startup loan for project experimentation and must refinance for production. Borrowing capacity is limited...
This article surveys recent theoretical and empirical advancements on the impact of interest rates on bank valuations and stability—two crucial concerns for financial researchers, policy makers, and regulators. We begin by highlighting the distinctive feature of the regional banking crisis of 2023—the prevalence of liq...
E. Jiang, Gregor Matvos, T. Piskorski et al.· Annual Review of Financial E...· 0 citations
This paper extends the classical Merton structural credit risk model by incorporating dynamic refinancing risk into the measurement of bank default risk. The study addresses a key limitation of traditional structural models, which treat default as a function of asset values relative to liabilities but abstract from deb...
Vukosi Era Maluleke, Eben Maré, Conrad Beyers· Risks· 0 citations
We use cookies to run the site and, with your consent, for analytics and to show ads.
See our Cookie Policy.
