@article{5054ec768be145308d20a9e86aff1759,
title = "Creditor control rights and resource allocation within firms",
abstract = "We examine the within-firm resource allocation and restructuring outcomes at firms violating debt covenants. Using establishment-level data from the US Census Bureau, we find that covenant violations are followed by reductions in employment, investment, and more frequent establishment closures among violating firms{\textquoteright} noncore business lines and less productive establishments. These changes are concentrated among establishments at which manager-shareholder agency costs are pronounced and when key lenders have industry experience. Our findings suggest that enhanced creditor control reduces managerial agency costs and encourages a more efficient allocation of resources within the boundaries of firms in technical default.",
keywords = "Control rights, Corporate governance, Covenant violations, Creditors, Restructuring",
author = "Nuri Ersahin and Irani, {Rustom M.} and Hanh Le",
note = "Funding Information: ☆ We thank Toni Whited (the editor), an anonymous referee, our discussants, Laurent Bach, Sean Cleary, Lubomir Litov, Justin Murfin, Farzad Saidi, Jason Sturgess, and Amir Sufi and numerous participants at the University of Illinois at Urbana-Champaign (Gies), AEA Annual Meetings, SFS Cavalcade, FIRS Annual Meetings, Drexel Corporate Governance Conference, Chicago Financial Institutions Conference, MoFiR Conference on Banking, Barcelona GSE Summer Forum, SIFR Conference on Credit Markets, CSEF-EIEF-SITE Conference on Finance and Labor, and the CEPR Spring Symposium in Financial Economics. We are grateful to Frank Limehouse for all his help at the Chicago Census Research Data. The research in this article was conducted while the authors were Special Sworn Status researchers of the US Census Bureau at the Chicago Census Research Data Center. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the US Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2021",
month = jan,
doi = "10.1016/j.jfineco.2020.07.006",
language = "English (US)",
volume = "139",
pages = "186--208",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "1",
}