Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79608
Authors: 
Adam, Tim R.
Streitz, Daniel
Year of Publication: 
2013
Series/Report no.: 
SFB 649 Discussion Paper 2013-027
Abstract: 
We show that performance-sensitive debt (PSD) is used to reduce hold-up problems in repeated lending relationships. Using a large sample of bank loans, we find a more frequent use of PSD if hold-up is more likely, e.g. if a longterm lending relationship exists and the borrower has fewer outside financing alternatives. The use of PSD is less likely in syndicated relationship loans, as hold-up is less important in this market. Finally, we find a substitution effect between the use of PSD and the tightness of financial covenants, which is consistent with PSD reducing hold-up problems caused by the use of covenants.
Subjects: 
performance-sensitive debt
relationship lending
hold-up
covenants
JEL: 
G21
G31
G32
Document Type: 
Working Paper

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