Passive bond funds provide predictable demand for newly issued corporate bonds included in popular indices. By issuing index-eligible bonds, firms can take advantage of this passive demand and improve bond characteristics unrelated to index eligibility. We find that higher passive demand...

This paper shows that financial covenants have no value for creditors of highly levered firms, because an attempt to enforce their rights in technical default would result in a lower payoff than continued operations under shareholders' control. This explains the widespread use of cov-lite loans...

The peer-to-peer loan market was designed to bring together borrowers and lenders without banks as middlemen. Yet over time P2P lending platforms have evolved into new intermediaries, performing essentially all tasks related to loan evaluation. By contrast, lenders are overwhelmingly passive and...

In structural models of risky debt default is triggered when the market value of the firm's assets falls below a certain solvency boundary. Based on market values of defaulting firms, I estimate the default boundary to be 66% of the face value of debt, and find support for models in which the...

Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling finding can be explained by the precautionary motive for...

Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling finding can be explained by the precautionary motive for...

Do strategic actions of borrowers and lenders affect corporate debt value? Our evidence indicates that they do, though the economic significance of the effect is limited. The possibility of renegotiation on average increases corporate debt spreads by 2-8 basis points due to the threat of...

Using a large sample of small-to-medium size firms that defaulted on their bank debt in France, Germany, and the UK, we find that large differences in creditors' rights across countries lead banks to adjust their lending and reorganization practices to mitigate the expected creditor-unfriendly...