Business, Management and Accounting
4 years ago

Debt covenant violations boost rivals' market share and performance.

Journal of Banking & Finance
Creditor control and product-market competition
Matthew T. Billett, Burcu Esmer, Miaomiao Yu

Paper Summary

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When companies break their debt agreements, their competitors respond by increasing advertising and market share. The more market share the rule-breaking companies had before, the more their rivals advertise. Rivals also gain more market share when products are similar. Rival companies also perform better when rule-breaking companies have a larger market share. This shows that when companies violate debt agreements, it affects their competitors and the competition in the market.