Dr. Jing Wang, assistant professor of finance at the University of Nebraska–Lincoln College of Business Administration, is earning positive attention for her recent research paper, “Debt Covenant Renegotiations and Creditor Control Rights.” Her article was published in the Journal of Financial Economics
in September 2014 and is creating great interest among financial organizations.
“My research area focuses on debt contracting and how creditors influence corporate operation,” said Wang. “Interaction with funding sources involves a continuing relationship. People cannot predict the future perfectly when they write the debt contracts initially. Therefore, borrowers and creditors should keep talking through the lending relationship.”
Wang’s research shows as a business reviews its loans, terms and relationships with lending sources, it is important to consider re-negotiating loan terms during success – and not simply focus on making changes during a potential default option.
“It is not all about bad situations, not being able to pay,” she said. “If we know there is no violation or missed payment, we can still talk about changing the terms. We can talk to creditors about allowing us to implement our preferred operating policies that would not be permitted by the original contracts.”
The idea of looking at situations outside of default and the resulting flexible creditor control has not been carefully researched before.
“Both firms and creditors will find it beneficial to relax the restrictions in the initial debt contracts when firms perform well and have good investment opportunities,” Wang said. “The company can even talk to the creditors to invest more or borrow more.”
The article shows the importance of looking at both situations with and without default to have a more complete understanding of creditors’ governance role in corporate finance.
This new perspective has generated strong interest. The paper has already been referenced in numerous other research projects. She has also been invited to submit this work to Finance and Accounting Memos (FAMe)
, which shares important new research with finance and accounting audiences. In addition, Wang received the 2015 CBA Best Paper Award for its outstanding contribution to academic literature.