| In my first essay, I study how the rise of non-bank loan investment from CLOs, mutual funds, and hedge funds influenced contracting relationships between firms and their senior lenders. Contrary to common perception that non-bank investors diluted the incentive for banks to monitor firms, I find evidence that bank underwriters embraced tighter contracts to mitigate agency and holdout problems associated with less-informed and dispersed non-bank investors. While recent studies show that non-bank loan investors lowered the cost and expanded the availability of capital ex ante , I conclude that tighter contracts also assigned stronger control rights to lenders and imposed higher renegotiation costs to firms ex post.;In my second essay, we examine the drivers of M&A activity in bankruptcy. M&A in bankruptcy is counter-cyclical, and is more likely when the costs of financing a reorganization are greater than financing costs to a potential acquirer. Consistent with a senior creditor liquidation bias, the greater use of secured debt leads to more sales in bankruptcy -- but, this result holds only for sales that preserve going concern value. We also show that overall creditor recovery rates are higher, and unsecured creditor recoveries and post-bankruptcy survival rates are not different, when bankrupt firms sell businesses as going concerns.;Finally, in my third essay, we examine whether corporate credit rating analysts are rewarded based on ratings accuracy or bias. Overall, accurate analysts are more likely to be promoted. However, analysts who disproportionately downgrade firms compared to the corresponding S&P rating are less likely to be promoted despite being more accurate than analysts who disproportionately upgrade firms. Further, analysts whose rating decisions lead to significantly negative announcement returns are also less likely to be promoted. We conclude that Moody's rewards accurate analysts but punishes analysts for negative bias. |
