
Coase-Sandor Working Paper Series in Law and Economics
Publication Date
2024
Abstract
A standard model of capital markets contracting posits that issuers select non-price terms to optimize future flexibility relative to the price they imagine investors will charge for it. To assess such a model’s capacity to explain term selection in the syndicated loan market, we study the secondary market reaction to events—the appearance and proliferation of a new type of restructuring transaction known as an uptier—that spurred change in primary market contracting. We find only weak (and fragile) evidence of a significant price effect. The imprecision of our results reveals, as a general matter, a challenge for scholars of fixed-income contracting who might rely on an event-study research design. The fact that market participants cannot obtain a reliable indication of “price” under the circumstances also casts doubt on the descriptive power of the price-discipline mechanism for all but the very most important features of a loan contract.
Number
1016
Recommended Citation
Badawi, Adam; Buccola, Vincent S.J.; and Nini, Greg, "Price Discipline for Non-Price Loan Terms" (2024). Coase-Sandor Working Paper Series in Law and Economics. 1016.
https://chicagounbound.uchicago.edu/law_and_economics/1068