Loan amendments and capital structure

Susanne Espenlaub; Arif Khurshed; Anna Neufeld

doi:10.1016/j.irfa.2025.103924

Loan amendments and capital structure

Susanne Espenlaub ^*, Arif Khurshed^*, Anna Neufeld^*

^*Corresponding author for this work

Research output: Contribution to journal › Article (Academic Journal) › peer-review

Abstract

We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996–2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.

Original language	English
Article number	103924
Number of pages	22
Journal	International Review of Financial Analysis
Volume	102
DOIs	https://doi.org/10.1016/j.irfa.2025.103924
Publication status	Published - 1 Jun 2025

Bibliographical note

Publisher Copyright:
© 2025 The Authors

Keywords

Bank loans
Syndicated loans
Capital structure
Covenants
Credit agreements
Loan amendment
Renegotiation
Private debt
Speed of adjustment
Target leverage
Financial intermediation

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title = "Loan amendments and capital structure",

abstract = "We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996–2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.",

keywords = "Bank loans, Syndicated loans, Capital structure, Covenants, Credit agreements, Loan amendment, Renegotiation, Private debt, Speed of adjustment, Target leverage, Financial intermediation",

author = "Susanne Espenlaub and Arif Khurshed and Anna Neufeld",

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year = "2025",

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doi = "10.1016/j.irfa.2025.103924",

language = "English",

volume = "102",

journal = "International Review of Financial Analysis",

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T1 - Loan amendments and capital structure

AU - Espenlaub , Susanne

AU - Khurshed, Arif

AU - Neufeld, Anna

PY - 2025/6/1

Y1 - 2025/6/1

N2 - We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996–2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.

AB - We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996–2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.

KW - Bank loans

KW - Syndicated loans

KW - Capital structure

KW - Covenants

KW - Credit agreements

KW - Loan amendment

KW - Renegotiation

KW - Private debt

KW - Speed of adjustment

KW - Target leverage

KW - Financial intermediation

UR - http://dx.doi.org/10.1016/j.irfa.2025.103924

U2 - 10.1016/j.irfa.2025.103924

DO - 10.1016/j.irfa.2025.103924

M3 - Article (Academic Journal)

SN - 1057-5219

VL - 102

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 103924

ER -

Loan amendments and capital structure

Abstract

Bibliographical note

Keywords

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