Time Inconsistency and Financial Covenants
研究了财务契约如何通过状态依赖的决策权分配影响企业行为，发现契约能降低违约概率并提升企业价值，但价值创造受限于债权人的有限承诺，且契约严格程度与企业价值呈驼峰关系。
Financial covenants influence firm behavior by state-contingently allocating decision rights. I develop a quantitative model with long-term debt where shareholders cannot commit to not dilute existing lenders with new debt issuances. Lenders intervene on covenant violations but cannot commit either to any debt restructuring plan ex ante. Counterfactual experiments suggest that financial covenants significantly reduce default probability and increase firm value. However, the value creation is limited by lenders’ limited commitment. A hump-shaped relation between covenant tightness and firm value emerges, reflecting a balance between limited commitment on two sides. This paper was accepted by Gustavo Manso, finance. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2022.4667 .