Debt Renegotiation and Debt Overhang: Evidence from Lender Mergers

This article studies whether debt renegotiation mitigates debt overhang and increases corporate investment. Using mergers between lenders participating in the same syndicated loans as natural experiments that reduce the number of lenders and thus make renegotiation easier, I find that the firms affected by the mergers become more likely to renegotiate the loans and increase capital investment. The effect is stronger for firms with higher Q and firms in financial distress, supporting the hypothesis that the lender mergers mitigate the debt-overhang problem.