American Finance Association Conference 2020
Abstract:
This paper examines the effect of creditor rights on bank loan contract design. Focusing on the conflict of interest between creditors, I study how bank lenders respond to a legal change that strengthens the rights of securitization creditors. Improving the power of securitization creditors to seize their collateral in bankruptcy reduces their incentives to maximize recoveries in chapter 11, increasing the risk of other competing creditors, such as banks. I find that loans granted to firms using asset securitization have higher interest rates, higher fees, smaller size, and more covenant restrictions after the law change. These effects are stronger for firms with higher default risk, for which the legal change may have a bigger impact. My findings thus highlight how increasing the power of some corporate creditors affects the other financial contracts of the firm.
International Finance and Banking Society (IFABS) Conference (Best PhD. Paper Award), Paris Financial Management Conference, NHH Brown Bag seminar
Abstract:
This paper examines the relation between liquidity and the use of call provisions in the U.S. corporate bond market. I provide evidence that issuers desire to include call provisions on their newly issued bonds as a mechanism to mitigate the adverse effects of illiquidity on corporate bond contracts. Employing several liquidity measures, I find that firms are more likely to issue callable bonds when expected bond liquidity in the primary market is low. The effect of liquidity on call provisions is intensified for issues with high credit risk and high rollover risk. Further, I find that the likelihood of retiring a callable bond early is positively linked to the liquidity improvements on the issue. This result suggests that firms tend to exercise the call option under favorable liquidity conditions. In particular, the liquidity effect on early redemption is stronger for bonds issued during the subprime crisis.
Abstract:
This paper examines the effect of capital supply on corporate debt structure through studying the use of asset securitization. Financing through securitization enables firms to isolate credit risk of the originator company from that of securitized debt, thereby providing access to high-grade debt market. I find that securitization of corporate assets leads to a reduction in the fraction of bank loans, which is consistent with information theories. The effect is more pronounced for firms with high information asymmetry problems and financially constraint firms. I also find that securitization is negatively associated with the proportion of subordinated bonds and senior unsecured bonds. The decline in subordinated bonds is stronger for firms facing high bankruptcy risk and financially restricted borrowers whereas the effect on senior unsecured bonds is greater for investment grade firms without access to commercial papers. Finally, a bond level analysis reveals that securitization of corporate assets increases the probability of bond redemption, providing further evidence that firms use securitization financing to repay their maturing bonds and adjust corporate debt structure.
(with MHF Zarandi, M Zarinbal, IB Turksen)
Journal of Information Sciences, 2013, 222: 213-228.