TY  - UNPD
A1  - Bannier, Christina E.
A1  - Wiemann, Markus
T1  - Performance-sensitive debt - the intertwined effects of performance measurement and pricing grid asymmetry : [This version: September 8, 2014]
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 476
N2  - This paper studies the use of performance pricing (PP) provisions in debt contracts and compares accounting-based with rating-based pricing designs. We find that rating-based provisions are used by volatile-growth borrowers and allow for stronger spread increases over the credit period. Accounting-based provisions are employed by opaque-growth borrowers and stipulate stronger spread reductions. Further, a higher spread-increase potential in rating-based contracts lowers the spread at the loan’s inception and improves the borrower’s performance later on. In contrast, a higher spread-decrease potential in accounting-based contracts lowers the initial spread and raises the borrower’s leverage afterwards. The evidence indicates that rating-based contracts are indeed employed for different reasons than accounting-based contracts: the former to signal a borrower’s quality, the latter to mitigate investment inefficiencies.
T3  - CFS working paper series - 476 
KW  - performance pricing
KW  - performance-sensitive debt
KW  - accounting data
KW  - credit ratings
KW  - underinvestment
KW  - collateral
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/35108
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-351088
UR  - http://ssrn.com/abstract=2507707
IS  - September 8, 2014
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -