Creditor Intervention, Investment, and Growth Opportunities Articles uri icon

publication date

  • April 2015

start page

  • 203

end page

  • 228


  • 2


  • 47

International Standard Serial Number (ISSN)

  • 0920-8550

Electronic International Standard Serial Number (EISSN)

  • 1573-0735


  • We show that creditors do not just ensure that inefficient investment is not undertaken, but also do not preclude efficient investment. Examining what happens following a debt covenant violation, a situation through which creditors acquire some control rights over the firm, we find that investment declines when the firm has few growth opportunities but it may increase otherwise. The results are robust to the use of different proxies for growth opportunities. The firm's performance improves but it suffers dividend cuts and increased CEO turnover. The results suggest that creditors consider the benefits of growth opportunities as a source of future cash flows to meet outstanding debt obligations.


  • debt covenants; bond covenants; control rights; contracts; agency; risk; firm; renegotiation; determinants; violations