ACCTG 502 | Session 7 | Scope for renegotiation in private debt contracts - 2018

Valeri V. Nikolaev

Introduction

The study explores why and how private debt contracts are renegotiated, focusing on whether the degree of renegotiation can be predicted from initial contracting frictions. Nikolaev creates a large dataset of over 40,000 renegotiations to test predictions from contract theory. The main idea is that renegotiation is a tradeoff: it offers monitoring benefits to creditors and firms, but also brings costs like hold-up and restrictions on investment.