PhD defence: Chunbo Liu

PhD Defense

13 May 2016 13:25

(updated: 13 May 2016 13:28)

PhD defence: Chunbo Liu

On Monday 30 May 2016 Chunbo Liu will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.

Prescribed topic for the trial lecture

The Role of Covenants in Debt Contracts

Trial lecture

10:15 in Jebsen Centre NHH

Title of the thesis

Essays on Debt Covenants and Creditor Control


Debt covenants and creditor control have strong implications for capital structure and firm investment. The thesis by Chunbo Liu focuses on the design of covenants and the allocation of control rights in debt contracts.

The first chapter examines how the use of debt covenants varies with growth opportunities of firms. Relying on the War in Afghanistan which shocks (positively) growth opportunities of US defense contractors for identification, Liu shows that creditors of these firms relax contractual restrictions to minimize inefficiencies associated with covenants. His paper also sheds light on the ex post allocation of control rights by analyzing post-violation creditor actions, as well as the renegotiation of covenants. Moreover, evidence is found that supports both the “flexibility” and the “agency issue” channel underlying the above findings.

In the second chapter, Liu argues that the renegotiation friction inside lending syndicates is a key motivation to issue covenant-lite loans, a type of debt financing which recently demonstrated a strong return to the credit market. The number of lenders and the presence of institutional money are both found to predict the likelihood of covenant-lite loan issuance. Moreover, this paper shows that creditors of covenant-lite loans resort to other means of monitoring that involve less renegotiation costs.

The third chapter provides evidence in support of “cross-monitoring” from bank loan lenders to bondholders. The findings are consistent with optimal security design which implies that bondholders benefit from the monitoring by banks, in spite of severe conflicts of interest between them during financial distress.


12:15 in Jebsen Centre, NHH

Members of the evaluation committee

Assistant Professor Xunhua Su (leader of the committee), Department of finance, NHH

Professor Bo Becker, Stockholm School of Economics

Professor David C. Smith, University of Virginia

Supervising committee

Associate professor Carsten Bienz (principal supervisor), Department of finance, NHH

Associate professor Aksel Mjøs, Department of finance, NHH

The trial lecture and thesis defence will be open to the public. Copies of the thesis will be available from

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