Michael Roberts from the University of Pennsylvania (the Wharton School) is
giving a VGSF research seminar on "Control Rights and Capital Structure:
An Empirical Investigation" on WEDNESDAY, May 9th, from 16:00 to 17:30 in SR
1 (Seminarraum 1) at the BWZ, Brünnerstrasse 72, 1210 Wien. See the VGSF
webpage (Activities & Events --> Research Seminars) for a map of the
location, the paper to download (soon) and this term's entire schedule of
seminars.
Please find the paper's abstract below. Michael Roberts is going to be in
Vienna until Friday morning. He would be very happy to discuss research with
the local faculty. Please contact Michael Halling if you are interested and
would like to take advantage of this opportunity.
Best,
Michael Halling
Abstract
We show that a large number of financing decisions of solvent firms are
dictated by creditors, who use the transfer of control rights accompanying
financial covenant violations to address incentive conflicts between
managers and investors. After showing that financial covenant violations
occur among almost one third of all publicly listed firms, we find that
creditors use the threat of accelerating the loan to reduce net debt issuing
activity by over 2% of assets per annum immediately following a covenant
violation. Further, this decline is persistent in that net debt issuing
activity fails to return to pre-violation levels even after two years,
resulting in a gradual decline in leverage of almost 3%. These findings
represent the first, of which we are aware, piece of empirical evidence
highlighting the role of control rights in shaping corporate financial
policies outside of bankruptcy.