Renegotiation of financial contracts: Evidence from private credit agreements

Using a large sample of private credit agreements between U.S. publicly traded firms and financial institutions, we show that over 90% of long-term debt contracts are renegotiated prior to their stated maturity. Renegotiations result in large changes to the amount, maturity, and pricing of the contract, occur relatively early in the life of the contract, and are rarely a consequence of distress or default. The accrual of new information concerning the credit quality, investment opportunities, and collateral of the borrower, as well as macroeconomic fluctuations in credit and equity market conditions, are the primary determinants of renegotiation and its outcomes. The terms of the initial contract (e.g., contingencies) also play an important role in renegotiations; by altering the structure of the contract in a state contingent manner, renegotiation is partially controlled by the contractual assignment of bargaining power.     

Hotel workers’ substance use and abuse

This study investigates the usage of tobacco, alcohol, and cannabis among hotel employees in the resort city of Eilat. Data obtained from a sample of 458 respondents, drawn from three hotel chains, provides evidence of workers’ substance consumption in light of their socio-demographic backgrounds and specific job characteristics. The results indicate a higher rate of substance use among study participants in comparison to the average in Israeli society. Substance use was found to be the most prevalent among young, single male employees with relatively low levels of education. In terms of job characteristics, front-of-the-house employees were more prone to binge drinking than back-of-the house employees. It is suggested that work-related programs and policies, such as sensible drinking workshops and smoking cessation programs, may help prevent alcohol misuse and reduce extensive substance use among hotel staff.     

Social comparisons of wage increases and job satisfaction

We combine status quo and social comparison considerations and investigate whether relative wage increases in the sense of differences between individual wage increases and wage increases of comparable employees are related to managers’ job satisfaction. Using a panel data set of managers in the German chemical industry, we indeed find first evidence. The relation between relative wage increases and job satisfaction is relevant for managers with lower absolute wage levels in particular.     

The contribution of bank regulation and fair value accounting to procyclical leverage

Our analysis of how banks’ responses to asset price changes can result in procyclical leverage reveals that, for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, procyclical leverage does not occur. For banks without a binding constraint, fair value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of U.S. commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. We also show that fair value accounting does not contribute to procyclical leverage.     

Closed-end bond fund discounts: Agency costs,investor sentiment and portfolio content

A sample of closed-end bond funds is examined to investigate several hypotheses purporting to explain closed-end fund discounts. Consistent with Brickley, Manaster and Schallheim (1991), unrealized capital appreciation is found to be negatively related to the discount. Support also is found for the investor sentiment hypothesis of Lee, Shleifer, and Thaler (1991). Fund expense, a proxy for agency-related issues, and holdings of foreign securities, are found to be positively related to the discount. Two proxies for the investor allocation decision: the slope of the yield curve, and differential returns between stocks and bonds, are significant in the directions expected. No significant relationships are found between investments in either restricted securities or large outside blockholdings and the discount.     

Cournot Oligopoly and the Theory of Supermodular Games

We reconsider the Cournot oligopoly problem in light of the theory of supermodular games. Invoking the recent ordinal version of this theory proposed by Milgrom and Shannon, we generalize Novshek's existence result, derive the associated uniqueness result, give an extension of a classical existence result under symmetry, and provide conditions making a Cournot oligopoly into a log-supermodular game (with the natural order on the action sets). We also provide extensive and precise insight as to why decreasing best-responses are widely regarded as being “typical” for the Cournot model with production costs. Several illustrative examples are provided.Journal of Economic LiteratureClassification Numbers: C72, L10, L13.