Imbie owicz, Bjö n; S ei z, Daniel
A icle — Published Ve sion
Financial deb con ac ing and manage ial agency
p oblems
Financial Managemen
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John Wiley & Sons
Sugges ed Ci a ion: Imbie owicz, Bjö n; S ei z, Daniel (2024) : Financial deb con ac ing and
manage ial agency p oblems, Financial Managemen , ISSN 1755-053X, Wiley, Hoboken, NJ, Vol. 53,
Iss. 1, pp. 99-118,
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DOI: 10.1111/ ima.12444
ORIGINAL ARTICLE
Financial deb con ac ing and manage ial agency
p oblems
Bjö n Imbie owicz1Daniel S ei z2,3
1Deu sche Bundesbank, Cen al O ice,
Resea ch Cen e, F ank u am Main, Ge many
2Halle Ins i u e o Economic Resea ch, Halle
(Saale), Ge many
3Facul y o Economics and Business
Adminis a ion, F ied ich Schille Uni e si y
Jena, Jena, Ge many
Co espondence
Bjö n Imbie owicz, Deu sche Bundesbank,
Cen al O ice, Resea ch Cen e, Mainze
Lands asse 46, 60325 F ank u am Main,
Ge many.
Email: [email p o ec ed]
Abs ac
This pape analyzes i lende s esol e manage ial agency
p oblems in loan con ac s using sweep co enan s. Sweeps
equi e a (pa ial) p epaymen when igge ed and a e
included in many con ac s. Exploi ing exogenous educ ions
in analys co e age due o b oke age house me ge s and clo-
su es, we ind ha inc eased bo owe opaci y signi ican ly
inc eases sweep use. The e ec is s onges o bo owe s
wi h highe le els o manage ial en enchmen and i lende s
hold bo h deb and equi y in he i m. O e all, ou esul s
sugges ha lende s implemen sweep co enan s o mi i-
ga e manage ial agency p oblems by limi ing con ingencies
o weal h exp op ia ion.
KEYWORDS
agency p oblems, co enan , loan con ac , sweep p o ision
1INTRODUCTION
The alloca ion o con ol igh s be ween c edi o s and sha eholde s is he main objec o in e es in a la ge body o li -
e a u e (see, e.g., Ch is ensen e al., 2016 o an o e iew). In con as , he po en ial con lic be ween c edi o s and he
i m’s managemen is o en neglec ed. Howe e , ac ions by en enched manage s can ha e ad e se consequences o
sha eholde s and lende s alike, o en wi hou igge ing s anda d inancial co enan s. Fo ins ance, asse s sales o he
misuse o co po a e cash ese es may a ec i ms’ de aul isk o colla e al alue. In his pape , we documen e idence
ha is consis en wi h sweep co enan s—which a e included in almos hal o all loan con ac s in ou sample—being
used o add ess po en ial ad e se consequences o manage ial ac ions on lende s.
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion-NonComme cial-NoDe i s License, which pe mi s
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adap a ions a e made.
© 2024 The Au ho s. Financial Managemen published by Wiley Pe iodicals LLC on behal o Financial Managemen Associa ion
In e na ional.
Financial Managemen . 2024;53:99–118. wileyonlinelib a y.com/jou nal/ ima 99
100 IMBIEROWICZ AND STREITZ
Sweep clauses do no oblige i ms o main ain ce ain balance shee o p o i and loss s a emen a ios. Ins ead,
sweep co enan s equi e he bo owe o immedia ely epay a gi en pe cen age o he loan when ce ain cash p o-
ceeds become a ailable (e.g., om asse sales, deb o equi y issuance, o insu ance p oceeds). By equi ing payou s
o c edi o s, sweep clauses may help discipline managemen . Fi s , sweeps es ic manage s’ abili y o accumula e
excess cash low and hence may educe manage s’ lexibili y. Second, sweeps may ha e incen i e e ec s as hey educe
he bene i s om s a egic asse sales o secu i y issues (Lang e al., 1995), as pa o he p oceeds mus be used o pay
down deb . This may limi manage s’ incen i es o engage in such beha io ex an e. Thi d, he misuse o cash wind alls,
o example, om unexpec ed insu ance p oceeds, can be es ic ed (Blancha d e al., 1994; Glase e al., 2013). O e -
all, he implemen a ion o sweep co enan s in loan con ac s implies ha manage ial lexibili y is cu ailed ex an e,
limi ing po en ial ad e se e ec s o manage ial agency p oblems on deb holde s.
We use exogenous a ia ion in ou side moni o ing o examine he link be ween manage ial agency p oblems and
loan con ac design. Speci ically, we u ilize changes in analys co e age o bo owe s induced by b oke age house
me ge s o closu es (see, among o he s, Hong & Kacpe czyk, 2010). Following he me ge o wo b oke age houses,
due o o e lapping co e age, a edundan analys is ypically le go (Wu & Zhang, 2009). This esul s in a dec ease
in analys co e age and acco dingly a lowe deg ee o ou side moni o ing o he i m, which is independen o any
i m and manage cha ac e is ics.1Gi en ha manage ial agency p oblems a e mo e se e e o i ms wi h less ou side
moni o ing (e.g., Jensen & Meckling, 1976),2 his c ea es a na u al se ing o s udy he e ec s o agency p oblems on
loan con ac design.
We ind ha an exogenous dec ease in ou side moni o ing inc eases he p obabili y o including a sweep co enan
in a loan con ac by nine pe cen age poin s. This co esponds o a sizable inc ease o sweep use in ea men i ms’
loan con ac s o 21% ela i e o he uncondi ional mean. We also obse e ha he numbe o sweep co enan s in a
con ac inc eases. In con as , we do no obse e an e ec o he change in ou side moni o ing on inancial co enan s,
which a e ypically used o add ess con lic s o in e es be ween sha eholde s and deb holde s. Fu he es s show
ha he pa allel ends assump ion holds; ha is, he e is no p e- end in sweep use o ea ed e sus con ol i ms
p io o a b oke age house me ge o closu e, p o iding suppo o ou iden i ica ion s a egy.
We p o ide a se ies o c oss-sec ional es s ha co obo a e ou main esul . Fi s , we in es iga e he e ec o ou -
side moni o ing o i ms wi h di e en ini ial le els o analys co e age. We hypo hesize ha e ec s should be mo e
p onounced o mo e opaque i ms, ha is, i ms wi h less ini ial co e age. Ou esul s indica e ha lende s implemen
sweep co enan s ollowing a educ ion in analys co e age, especially when i m anspa ency is low ex-an e.
Second, we in es iga e he ole o o he co po a e go e nance mechanisms. Ex e nal moni o ing and in e nal mon-
i o ing (e.g., boa d o e sigh ) migh be ei he subs i u es o complemen s (e.g., I ani & Oesch, 2013). We he e o e
subdi ide i ms by hei p e- ea men go e nance quali y. Fo example, manage ial agency p oblems a e mo e se e e
o companies wi h excess unds o long CEO enu e (Jensen, 1986; Kalche a & Lins, 2007;Lie,2000), while mo e ins i-
u ional owne ship educes manage ial en enchmen (Cha a e al., 2010; Finkels ein & Hamb ick, 1989). Ou esul s
show ha he e ec o a educ ion o analys co e age on sweep co enan use is pa icula ly p onounced among i ms
wi h poo co po a e go e nance. In con as , he e ec is limi ed o well-go e ned i ms. Ou esul s he eby com-
plemen he inding o I ani and Oesch (2013) ha ex e nal moni o ing by analys s and o he go e nance mechanisms
a e subs i u es.
One po en ial conce n migh be ha e en i manage ial agency p oblems a ec deb holde s, ac ions aken by
equi y holde s migh be be e sui ed o discipline manage s. Fo ins ance, sha eholde s migh incen i ize i ms o
use excess cash o payou s (di idends o sha e epu chases) o in e es paymen s, ha is, o le e up (Eas e b ook,
1I is also independen o he indi idual analys . Fo ins ance, Hong and Kacpe czyk (2010) and I ani and Oesch (2013) p o ide e idence ha analys co e age
educ ions a e concen a ed a he a ge b oke age house, ha is, he educ ion o analys s ollows a ule which is no ela ed o skill.
2Fo ins ance, Kelly and Ljungq is (2012) documen ha a dec ease in analys co e age inc eases in o ma ion asymme y (see also B ennan & Sub ah-
manyam, 1995; Ellul & Panayides, 2018). I ani and Oesch (2013) p o ide e idence ha inancial epo ing quali y is lowe ollowing a educ ion in co e age.
Dyck e al. (2010) show ha in o ma ion in e media ies a e o en among he i s o de ec manage ial misbeha io . Chen e al. (2015) p esen esul s, which
a e consis en wi h he conjec u e ha manage ial agency p oblems inc ease ollowing analys co e age educ ions.
IMBIEROWICZ AND STREITZ 101
1984; Jensen & Meckling, 1976). Such ac ions, howe e , migh no be in he in e es o deb holde s. Inc easing le e -
age inc eases de aul isk and may exace ba e isk-shi ing incen i es o sha eholde s (Cha a e al., 2010; Maxwell
& S ephens, 2003). Hence, deb holde s may p e e o he means o add essing manage misbeha io , such as sweep
con ac s.3
Fu he mo e, mos i ms ope a e well abo e hei de aul ba ie such ha he con ingencies ha sweeps add ess
a e pa icula ly ele an o equi y holde s. I sweeps a e used by lende s o add ess manage ial agency p oblems, we
should he e o e expec o obse e a s onge inc ease in sweep use o lende s ha simul aneously also hold equi y o
he bo owing i m (dual holding). In a hi d s ep, we he e o e iden i y dual holde s. Ou esul s con i m ha lende s
inc ease sweep use mo e in loan con ac s o i ms in which hey also hold equi y.
The wo k by Huang (2010) is closes o his pape . He a gues ha sweep p o isions can mi iga e con lic s o in e -
es be ween c edi o s and sha eholde s. Sweeps may sho en he e ec i e ma u i y o loans by equi ing i ms wi h
excess cash low o p epay hei deb . This may o ce i ms o e u n o he capi al ma ke mo e equen ly, gi ing
lende s mo e con ol o e i ms’ in es men decisions in u u e con ac nego ia ions. The eby, he abili y o i ms
o pu sue in es men s a egies ha bene i sha eholde s bu hu deb holde s migh be educed. Consis en wi h
his iew, Huang (2010) obse es a posi i e co ela ion be ween sweep co enan s and i m le e age and ins i u ional
owne ship.
We complemen he wo k by Huang (2010) by documen ing an inc eased use o sweep p o isions in loan con ac s
ollowing an exogenous dec ease in bo owe anspa ency. This e ec is pa icula ly p onounced o mo e opaque
bo owe s and bo owe s wi h a highe le el o manage ial en enchmen . This e idence sugges s ha manage ial
agency p oblems a e a i s -o de de e minan o sweep p o isions.4
Ou wo k also con ibu es o se e al o he s ands o li e a u e. Fi s , we add o he li e a u e on he impac o
manage ial agency p oblems on deb con ac ing. Cha a e al. (2010) documen ha ac o s associa ed wi h manage-
ial en enchmen posi i ely co ela e wi h in es men es ic ions in bond con ac s and nega i ely co ela e wi h
subsequen inancing and di idend es ic ions. Thei indings sugges ha manage ial agency p oblems a e a ac o
in deb con ac design. Begley and Fel ham (1999) documen ha manage ial sha e owne ship has a signi ican e ec
on he inclusion o bond co enan s ha es ic s addi ional bo owing o di idend payou s. This li e a u e exclusi ely
ocuses on bonds. We con ibu e o his li e a u e by documen ing ha lende s implemen sweep co enan s in loan
con ac s o add ess con ingencies o weal h exp op ia ion by i m managemen . Ou iden i ica ion s a egy he eby
allows us o es ablish a causal ela ionship be ween he deg ee o ou side moni o ing, used as a p oxy o he deg ee
o manage ial agency p oblems, and he use o sweep clauses in loan con ac s.
Second, we con ibu e o he li e a u e on sweep co enan s in loan con ac s. Despi e hei equen use, mos o
he li e a u e does no speci ically ocus on sweep co enan s. Ins ead, sweep co enan s a e o en included in co enan
in ensi y indices (B adley & Robe s, 2015; Demi oglu & James, 2010) o in es iga ed in ela ion o inancial co enan s
(Ch is ensen & Nikolae , 2012). As discussed abo e, one no able excep ion is Huang (2010). We add o his li e a-
u e by documen ing an inc eased use o sweep p o isions in loan con ac s when bo owe anspa ency dec eases.
Fu he mo e, we p o ide empi ical e idence ha his e ec is pa icula ly p onounced o mo e opaque bo owe s
and bo owe s wi h a highe le el o manage ial en enchmen , sugges ing ha sweep p o isions a e used o add ess
manage ial agency p oblems.
Finally, we also add o he la ge li e a u e on lende igh s and con ol h ough loan con ac design. Mos p io
wo k ocuses on he alloca ion o con ol igh s be ween c edi o s and sha eholde s ia inancial co enan s. Robe s
(2015), Li e al. (2016), and Nikolae (2018) in es iga e he alloca ion o con ol igh s wi hin a loan, while Cha a and
Robe s (2008), Robe s and Su i (2009a, 2009b), Nini e al. (2009, 2012), Deme jian and Owens (2016), and F euden-
be g e al. (2017) in es iga e he e ec s o shi s in con ol igh s o c edi o s on he i m le el, and Deme jian (2011)
3S ulz (1988) a gues ha akeo e h ea s can cons ain mange s, which, howe e , migh also no be bene icial o deb holde s. Fo ins ance, he inancial
isk o he a ge i m inc eases i he akeo e is accompanied by a la ge inc ease in le e age (Cha a e al., 2009).
4Clea ly, manage ial agency p oblems and con lic s o in e es be ween sha eholde s and deb holde s a e no mu ually exclusi e. Tha is, ou e idence does
no p eclude ha sweep p o isions may also help mi iga e c edi o –sha eholde con lic s o in e es .
102 IMBIEROWICZ AND STREITZ
and Ch is ensen and Nikolae (2012) dis inguish be ween di e en ypes o co enan s. Mu in (2012) and Deme jian
and Owens (2016) de elop and in es iga e agg ega e measu es o inancial co enan s ic ness. Hallman e al. (2022)
also examine loan con ac e ms a ound changes in analys co e age o non- inancial i ms. They p o ide e idence
ha an inc ease in in o ma ion asymme y as a esul o a educ ion in analys co e age is ela ed o highe loan
sp eads, a educ ion in c edi supply, and mo e es ic i e co enan s. We add o his li e a u e by emphasizing he di -
e ing ole o sweep co enan s compa ed o o he inancial co enan s and loan con ac es ic ions. Sweep co enan s
ha e he po en ial o mi iga e manage ial agency p oblems by limi ing con ingencies o weal h exp op ia ion.
The emainde o his pape p oceeds as ollows. Sec ion 2desc ibes ou iden i ica ion s a egy and he da a.
Sec ion 3 epo s he esul s o he empi ical analysis. Sec ion 4concludes.
2 EMPIRICAL SETUP AND DATA
2.1 Iden i ica ion s a egy
A simple empi ical s a egy o examine he link be ween manage ial agency issues and loan con ac ing would be o
eg ess a measu e o sweep o inancial co enan use on p oxies o he deg ee o misuse o co po a e esou ces by
manage s, such as measu es o i m anspa ency. While in ui i ely appealing, he es ima es om such eg essions
a e ha d o in e p e due o endogenei y p oblems. Fo ins ance, i could be ha i ms wi h highe manage ial agency
p oblems equi e mo e ou side con ol and hence may ha e highe anspa ency le els. Tha is, a simple eg ession
o sweep use on anspa ency could indica e a misleading posi i e ela ionship, as bo h a iables a e endogenously
de e mined by he (unobse able) deg ee o manage ial agency p oblems.
To o e come his issue, we u ilize exogenous changes in ou side moni o ing, which di ec ly a ec he i m’s in o -
ma ion en i onmen . In pa icula , we ollow Hong and Kacpe czyk (2010) and I ani and Oesch (2013) and s udy
b oke age house me ge s and closu es.5Wu and Zhang (2009) ind ha subsequen o a me ge o wo b oke age
houses wi h an ac i e equi y esea ch depa men , he esul ing en i y lays o analys s o mi iga e edundancies
caused by o e lapping co e age. As a esul , companies ha we e p e iously co e ed by bo h b oke age houses
expe ience a decline in analys co e age. Impo an ly, he educ ion in co e age is independen o unobse able
i m and manage cha ac e is ics and is nei he de e mined by he indi idual analys no by he i m o which he
co e age is educed. Hong and Kacpe czyk (2010) and I ani and Oesch (2013) p o ide e idence ha he analys co -
e age educ ion ollows a ule un ela ed o skill—in mos cases, he analys o he a ge b oke age house is le go.
Simila ly, he closu e o a b oke age house leads o a decline in analys co e age o a ec ed i ms. Fu he , pa ic-
ula ly impo an in ou se ing, b oke age houses a e gene ally no inancial ins i u ions g an ing loans; ha is, i is
unlikely ha a b oke age house me ge o closu e has a di ec e ec on c edi supply o he i ms co e ed by he
en i ies.6
Se e al s udies p o ide e idence consis en wi h he i s s ep equi ed o ou a gumen ; ha is, he idea ha a
loss in analys co e age indeed inc eases in o ma ion asymme y as ou side moni o ing and in o ma ion p oduc ion
is educed. Kelly and Ljungq is (2012), o ins ance, documen ha s ock ma ke -based measu es o in o ma ion
asymme y (e.g., p obabili y o in o med ading, bid-ask sp eads) wo sen ollowing losses o analys co e age (see
also B ennan & Sub ahmanyam, 1995; Ellul & Panayides, 2018). I ani and Oesch (2013) p o ide e idence ha inan-
cial epo ing quali y wo sens. The nex s ep, ha is, he link be ween (ex e nal) in o ma ion p oduc ion, manage ial
en enchmen , and manage ial agency p oblems, goes back o Jensen and Meckling (1976) and has been examined in
5While b oke esea ch epo s p ima ily a ge equi y in es o s, hey a e also an impo an sou ce o in o ma ion used by (p ospec i e) lende s. Fo ins ance,
I ani and Oesch (2013) show ha a educ ion in analys co e age leads o an o e all lowe inancial epo ing quali y and ha epo ing quali y has been shown
o a ec loan e ms (G aham e al., 2008).
6Some b oke age houses a e a ilia ed wi h inancial ins i u ions ha also ha e lending business. Howe e , as discussed in he nex sec ion, we do no ind
e idence ha ou esul s a e d i en by e en s ha in ol e a b oke age house ha is a ilia ed wi h an ac i e lende in he syndica ed loan ma ke .
IMBIEROWICZ AND STREITZ 103
se e al s udies since.7Ou main hypo hesis is on he inal s ep o his causal chain; ha is, ha sweep p o isions can
be used o limi manage ial disc e ion i ex e nal o e sigh is (exogenously) educed and manage ial en enchmen
inc eased.
We ollow Hong and Kacpe czyk (2010) and I ani and Oesch (2013) and sc een he SDC Me ge s and Acquisi ion
da abase o me ge s o wo inancial ins i u ions and limi he sample o i ms wi h SIC code 6211 (“In es men Com-
modi y Fi ms, Deale s and Exchanges”). We equi e ha bo h b oke age houses a e dissemina ing es ima es o he
I/B/E/S da abase and ha bo h b oke age houses ha e an o e lapping co e age o a leas wo s ocks. Gi en ha
I/B/E/S does no assign analys s o indi idual b oke age houses a e 2006, we end up wi h he same 13 me ge s as
Hong and Kacpe czyk (2010) and I ani and Oesch (2013). In addi ion o me ge s, we u he iden i y 11 b oke age
house closu e e en s in I/B/E/S ollowing Kelly and Ljungq is (2012).8Finally, we me ge he I/B/E/S in o ma ion o
LPC DealScan, which con ains de ailed loan-le el in o ma ion. Sweep and co enan in o ma ion ela es o a loan pack-
age which o en imes includes se e al loan acili ies. As is common in he li e a u e (e.g., Nini e al., 2009, 2012), we
analyze he da a a he acili y le el o be able o accoun o ac o s a ying a his le el such as he size and he
ma u i y o a acili y. We also include ixed e ec s o he speci ic ype o acili y in ou analyses.9
Fo each b oke age house me ge , we iden i y all s ocks ha a e co e ed by bo h me ging pa ies in he yea p io o
he me ge , ha is, s ocks wi h an “o e lapping co e age.” Simila ly, o closu es, we iden i y all s ocks ha a e co e ed
by he b oke age house in he yea p io o he closu e. These i ms a e he ocus o his pape and a e in he ollowing
e e ed o as “ ea ed.” We analyze all loan acili ies con ained in LPC DealScan in he symme ic 4-yea window
a ound each me ge o closu e, ha is, a window consis ing o 2 yea s be o e (720 days) he e en and 2 yea s a e
he e en .10 No e ha in his se ing, being ea ed is no a i m ixed e ec ; ha is, each e en a ec s a di e en se o
i ms. To cons uc symme ic windows and deal wi h o e lapping e en s, we i s cons uc sepa a e samples o each
e en . These samples a e hen pooled. Acco dingly, he same loan con ac migh be included in di e en windows
when e en windows a e o e lapping. We add ess his issue by including e en (me ge o closu e) × i m ixed e ec s
in all ou es ima ions, ha is, ocus on wi hin-e en a ia ion ac oss i ms. Fu he , he use o a s agge ed design, ha
is, pooling e en samples, add esses po en ial conce ns o he wise associa ed wi h s agge ed di e ence-in-di e ence
(DiD) amewo ks (Goodman-Bacon, 2021).
To accoun o sys ema ic di e ences be ween ea ed and con ol i ms, o each b oke age house me ge o clo-
su e, we ma ch un ea ed i ms o each ea ed i m based on i m size ( o al asse s).11 These i ms o m he con ol
g oup. De yugina e al. (2020) p o ide empi ical e idence ha his ma ching es ima o gene a es mo e p ecise es i-
ma es han he s anda d DiD es ima o . We u he con ol o o he di e ences ac oss ea ed and con ol i ms by
including s anda d i m-le el and loan con ac con ol a iables in ou eg essions, de ined in mo e de ail in he ol-
lowing sec ion. To empi ically implemen ou na u al expe imen and es how he use o sweep clauses (and inancial
co enan s) changes ollowing a shock o analys co e age o he i m, we es ima e e sions o he ollowing pooled
7Chen e al. (2015), o ins ance, p o ide e idence ha ollowing an exogenous dec ease in ou side moni o ing, CEO compensa ion inc eases, he likelihood
ha managemen in es s in alue-des oying acquisi ions inc eases, and manage s a e mo e likely o engage in ea nings managemen ac i i ies. I ani and
Oesch (2013) documen ha a educ ion in ou side moni o ing educes inancial epo ing quali y; ha is, managemen may s a egically make inancial
s a emen s opaque o co e sel -dealing.
8We iden i y ewe closu e e en s compa ed o Kelly and Ljungq is (2012), as we equi e i ms ha a e co e ed by a b oke age house o also be ac i e
bo owe s in he LPC DealScan da abase.
9One conce n migh be ha esul s di e be ween e m loans and e ol e s. In un epo ed obus ness es s, we also examine whe he e ol ing loan acili ies
exhibi di e en ial ou comes wi h espec o he implemen a ion o sweeps in esponse o ea men and do no ind his con i med. No e ha he igge
o a sweep ypically implies a epaymen o he loans included in a loan package in he ollowing o de : i. e m loans, ii. cancella ion o a ailable e ol ing
commi men s, iii. p epaymen and cancella ion o used e ol ing commi men s, and i . epaymen and cancella ion o ancilla y acili ies.
10 Hong and Kacpe czyk (2010) and I ani and Oesch (2013) analyze a 2-yea window, whe eas ou window is 4 yea s. The eason is ha hei objec o analysis
is inancial s a emen in o ma ion, while we analyze loan issuances, which a e in gene al less equen o obse e. Tha is, only a ew i ms issue a loan bo h in
he yea p io o he b oke age house me ge as well as in he yea a e wa d. The inc ease in ime he e o e allows o mo e s a is ical powe .
11 We only ma ch on o al asse s o inc ease he p obabili y ha a sui able con ol i m can be ound o each ea ed i m. Howe e , we con i m in Table 1
ha a e ma ching on o al asse s ea ed and con ol, i ms a e e y compa able ac oss mos obse able dimensions.
104 IMBIEROWICZ AND STREITZ
panel (DiD) eg ession:
SWEEPm,j,i, =𝛼
m,i +𝛼
m, +𝛽POST ×TREATEDm,i, +𝜃
′Yi, +𝛿
′Zm,j,i, ,(1)
whe e SWEEPm,j,i, is an indica o a iable ha equals one i loan jby i m ia ime in he es ima ion window a ound
e en (b oke age house me ge o closu e) mincludes a sweep clause, and ze o o he wise. POSTm, is a dummy a iable
ha equals one in he pe iod a e he e en m, and ze o o he wise. TREATEDm,i is a dummy a iable ha equals one
i i m iis pa o he ea men sample o e en m, and ze o o he wise. am,i is a se o i m ×e en ixed e ec s, am,
is a se o ime ×e en ixed e ec s, Yi, is a se o i m cha ac e is ics, and Zm,j,i, is a se o loan cha ac e is ics. No e
ha , ollowing I ani and Oesch (2013), we do no include calenda yea ixed e ec s as any pe iod-speci ic e ec will
be cap u ed by he me ge (× ime) ixed e ec s. The coe icien o in e es is 𝛽, which cap u es he ea men e ec .
I shows he e ec o he b oke age house me ge /closu e, and he associa ed educ ion in analys co e age, on he
use o sweep co enan s (o o he ou come a iables) in loan con ac s. In all eg essions, we epo s anda d e o s
clus e ed a he i m le el as ea men a ia ion is mainly ac oss i ms.12
2.2 Sample selec ion and con ol a iables
We ob ain da a on secu i y analys co e age om I/B/E/S. Fo each e en , we ob ain all loans issued by public U.S.
non- inancial companies in a 720-day window be o e and a e he b oke age house me ge /closu e da e om LPC
DealScan. We me ge his sample wi h bo owe balance shee and income s a emen in o ma ion om Compus a .13
Th oughou he analysis, we con ol o basic i m cha ac e is ics. We con ol o i m size (log o o al asse s),
le e age, ma ke - o-book a io, p o i abili y, angibili y, in e es co e age, cu en a io, and c edi a ing. The la e
is based on S&P and included ia indica o a iables o each a ing no ch. Fu he , we con ol o basic loan cha ac-
e is ics. While loan cha ac e is ics a e impo an ac o s ha can explain he use o inancial co enan s and sweep
p o isions, mos loan e ms a e simul aneously de e mined, ha is, endogenous. Fo ins ance, a bo owe may pay a
lowe sp ead because a co enan is included in he con ac . We he e o e es ic ou loan le el con ol a iables o
hese wi h a high likelihood o being independen o he decision o include a sweep co enan in he loan con ac . We
include he (log) loan size, (log) ma u i y, loan ype, and loan pu pose. The a ionale is ha hese ac o s a e in gene al
de e mined by he i m p io o applying o a loan.14 Table 1shows desc ip i e s a is ics spli by he ea men and
con ol g oups.
The able shows ha a high ac ion o loans include sweep co enan s: 46% (43%) o all loans in he con ol ( ea -
men ) sample include a leas one sweep co enan . Sweeps can be classi ied by he sou ce o he cash p oceeds: (i)
asse sale, (ii) deb issuance, (iii) equi y issuance, (i ) excess cash low, and ( ) insu ance p oceeds. Table 1 epo s ha
on a e age, loans include 1.38 (1.27) sweep p o isions. I we ocus on he subse o loans ha include a leas one
sweep, we ind ha on a e age, loans o ea ed (con ol) i ms include 2.93 (3.02) sweep p o isions (no abula ed).
This indica es ha usually a combina ion o sweep clauses is used. This should no be su p ising gi en ha i ms a e
able o subs i u e be ween di e en sou ces o cash o some deg ee. Fo ins ance, i a loan includes an excess cash low
sweep bu no secu i y issuance sweeps, a manage could simply inance a p ojec wi h deb o equi y ins ead o using
12 In un epo ed obus ness es s, we e-es ima e ou eg ession and clus e s anda d e o s a se e al o he le els. The esul s show ha clus e ing does no
seem o be a ac o which subs an ially in luences ou esul s. We also es ima e a Poisson model o ou dependen a iables numbe o sweeps and numbe o
inancial co enan s ollowing Cohn e al. (2022). Resul s a e e y compa able o he OLS es ima es we p o ide in ou ables.
13 We use Michael Robe ’s Dealscan-Compus a Linking Da abase o me ge Dealscan wi h Compus a (Cha a & Robe s, 2008). We ob ain bo owe
in o ma ion om he las a ailable iscal yea p io o he loan.
14 We acknowledge ha hese a iables a e no en i ely independen o he loan con ac design nego ia ions. Fo ins ance, a i m may equi e a “la ge” loan,
bu he exac size is de e mined by he design o he loan con ac and an ou come o he nego ia ion wi h he lende . Howe e , all ou esul s emain i ually
unchanged i we do no con ol o hese ac o s.
IMBIEROWICZ AND STREITZ 105
TABLE 1 Summa y s a is ics o he ea men and con ol samples.
T ea men g oup Con ol g oup
N Mean Q1 Median Q3 SD N Mean Q1 Median Q3 SD
di .
(p- alue)
Loan cha ac e is ics
Facili y amoun
(million USD)
1692 436.05 109.77 266.75 550.12 479.26 1849 454.47 115.00 274.42 575.00 516.49 18.42 (0.272)
Ma u i y (mon hs) 1671 41.67 12.00 36.00 60.00 26.85 1827 43.47 12.00 38.00 60.00 28.12 1.80 (0.053)
SWEEP (0/1) 1692 0.43 0.00 0.00 1.00 0.50 1849 0.46 0.00 0.00 1.00 0.50 0.03 (0.227)
#SWEEP 1692 1.27 0.00 0.00 3.00 1.68 1849 1.38 0.00 0.00 3.00 1.78 0.11 (0.079)
FIN COV (0/1) 1692 0.94 1.00 1.00 1.00 0.23 1849 0.95 1.00 1.00 1.00 0.22 0.01 (0.684)
#FIN COV 1692 1.99 1.00 2.00 3.00 1.08 1849 2.04 1.00 2.00 3.00 1.05 0.05 (0.198)
#PERF COV 1692 1.56 1.00 1.00 2.00 1.18 1849 1.65 1.00 2.00 2.00 1.15 0.09 (0.018)
#CAP COV 1692 0.43 0.00 0.00 1.00 0.55 1849 0.39 0.00 0.00 1.00 0.55 0.04 (0.012)
Fi m cha ac e is ics
To al asse s
(million USD)
1690 5111.68 873.54 2031.54 5937.98 7394.65 1845 5062.0 822.67 2163.9 6104.0 6944.1 −49.62 (0.84)
Le e age 1686 0.37 0.20 0.36 0.49 0.22 1839 0.37 0.22 0.37 0.50 0.21 0.00 (0.593)
Ma ke - o-book 1618 1.93 1.22 1.57 2.19 1.18 1735 1.74 1.13 1.45 1.95 1.00 −0.19 (0.00)
P o i abili y 1686 0.19 0.09 0.15 0.26 0.16 1812 0.18 0.10 0.17 0.26 0.17 −0.01 (0.822)
Tangibili y 1681 0.40 0.17 0.37 0.59 0.25 1837 0.37 0.17 0.34 0.54 0.23 −0.03 (.000)
Co e age 1648 10.71 2.62 4.90 10.56 19.80 1783 11.69 2.49 4.46 9.14 24.33 0.98 (0.197)
Cu en a io 1618 1.74 1.03 1.44 2.12 1.18 1678 1.55 0.98 1.38 1.95 0.86 −0.19 (0.000)
No e: This able epo s summa y s a is ics o he sample o syndica ed loans o non- inancial No h Ame ican bo owe s. S a is ics a e epo ed sepa a ely o he ea men and con ol
samples o e he 4-yea window su ounding b oke age house me ge s. The ea men sample consis s o loans ob ained by i ms ha a e co e ed by bo h me ging b oke age houses in
he yea p io o he me ge . The con ol sample consis s o loans ob ained by i ms ha a e no a ec ed by he e en . T ea men and con ol i ms a e ma ched based on i m size ( o al
asse s). All i m da a a e measu ed in eal e ms wi h 2000 as base yea and a e winso ized a he 1% and 99% le els. All a iables a e de ined in Suppo ing In o ma ion Appendix A1.The
las column shows he di e ence be ween con ol and ea men i ms and he p- alue o a - es o i s s a is ical signi icance.
106 IMBIEROWICZ AND STREITZ
FIGURE 1 Use o sweep clauses o e ime. This igu e shows he ac ion o loan con ac s ha include a leas
one sweep clause. The sample comp ises syndica ed loans ob ained by public U.S. non- inancial i ms o e he
1996–2010 pe iod.
excess cash low. Almos all loans in ou sample (94%) include a leas one inancial co enan , in line wi h p io s udies
(see, e.g., Robe s & Su i, 2009a). The a e age numbe o inancial co enan s is sligh ly highe in he con ol sample
compa ed o he ea men sample (2.04 s. 1.99).
The a e age loan ma u i y is 42 mon hs o he ea men sample and 43 mon hs o he con ol sample. Loans by
ea ed i ms a e sligh ly smalle han loans by con ol i ms. The a e age loan size is 454 million USD o he con ol
sample compa ed o 436 million USD o he ea men sample. The able shows ha he a e age book alue o asse s
is 5112 million USD in he ea men sample and 5062 million USD in he con ol sample.
T ea ed i ms ha e on a e age he same le e age as con ol i ms (37%), ha e highe ma ke - o-book a ios (1.93
s. 1.74), and ha e a highe ac ion o angible o o al asse s (40% s. 37%). Fu he , ea ed i ms, on a e age, ha e a
highe e u n on asse s han con ol i ms (0.19 s. 0.18), smalle in e es co e age (10.7 s. 11.7), and la ge cu en
a ios (1.74 s. 1.55). The desc ip i e s a is ics show ha —despi e only ma ching based on i m size—ou p opensi y
sco e ma ching app oach pe o ms easonably well; ha is, he emaining di e ences be ween he ea men and he
con ol sample a e mino .
We depic in Figu e 1 he use o sweep co enan s in loan con ac s o e ime. In e es ingly, he use o sweep clauses
appea s o be p o-cyclical. This sugges s ha sweeps a e used especially in pe iods when he possibili y o weal h
exp op ia ion due o excess unds o a i m is highe .
3RESULTS
3.1 Baseline esul s
We i s in es iga e he impac o a change in analys co e age on he use o sweep co enan s in loan con ac s in
gene al. Tha is, we examine he a e age ea men e ec . This includes an analysis o he pa allel ends assump ion
IMBIEROWICZ AND STREITZ 113
TABLE 5 B oke age house me ge s—E ec by co po a e go e nance.
SWEEP (0/1)
(1) (2) (3) (4) (5)
POST ×TREATED ×
NOT RATED
0.189***
(0.000)
POST ×TREATED ×RATED 0.041
(0.267)
POST ×TREATED ×
HIGH CASH
0.141***
(0.004)
POST ×TREATED ×
LOW CASH
0.051
(0.180)
POST ×TREATED ×
LONG TENURE
0.152**
(0.035)
POST ×TREATED ×SHORT
TENURE
0.053
(0.163)
POST ×TREATED ×HIGH
CASH COMP
0.116**
(0.039)
POST ×TREATED ×
LOW CASH COMP
0.021
(0.585)
POST ×TREATED ×LOW
INST INV
0.241**
(0.028)
POST ×TREATED ×
HIGH INST INV
0.041
(0.340)
Fi m con ols Yes Yes Yes Yes Yes
Loan con ols Yes Yes Yes Yes Yes
Me ge ×Pos FE Yes Yes Yes Yes Yes
Me ge × i m FE Yes Yes Yes Yes Yes
Obse a ions 2966 2966 1893 2966 2941
Adjus ed R20.690 0.689 0.693 0.688 0.686
S a is ical di e ence be ween coe icien s
Di e ence 0.148*** 0.090 0.099 0.095 0.199*
Di e ence p- alue 0.010 0.103 0.180 0.132 0.076
No e: This able epo s esul s om he es ima ion o a pooled panel eg ession analyzing he use o sweep and inancial
co enan s a ound b oke age house me ge s. Fo each me ge , we conside a 2-yea window p io o he me ge (p e-me ge
window) and a 2-yea window a e he me ge (pos -me ge window). We cons uc an indica o a iable (TREATED) o each
me ge , which is equal o one o each i m co e ed by bo h me ging b oke age houses in he p e-me ge window ( ea men
sample), and ze o o he wise. Fo each me ge , POST is a a iable ha is equal o one o he pos -me ge pe iod and ze o
o he p e-me ge pe iod. Bo h a iables a e included as base e ec s in each eg ession. SWEEP (0/1) is a dummy a iable,
which equals one i he loan con ac includes a leas one sweep co enan , and ze o o he wise. LN(#SWEEP) is he log o
one plus he numbe o sweep co enan s included in he loan con ac . SWEEP RATIO is de ined as he numbe o sweep
co enan s di ided by he o al numbe o sweep and inancial co enan s included in he loan con ac . FIN COV (0/1) is a
dummy a iable, which equals one i he loan con ac includes a leas one inancial co enan , and ze o o he wise. LN(#FIN
COV) is he log o one plus he numbe o inancial co enan s included in he loan con ac . PERF COV RATIO is he numbe o
pe o mance-co enan s di ided by he o al numbe o inancial co enan s (pe o mance-co enan s plus capi al-co enan s) in
he loan con ac . Financial co enan s a e di ided in o pe o mance-co enan s and capi al-co enan s ollowing Ch is ensen
(Con inues)
114 IMBIEROWICZ AND STREITZ
TABLE 5 (Con inued)
and Nikolae (2012). NOT RATED (RATED) is a dummy a iable ha equals one i he i m has no c edi a ing p e-me ge ,
and ze o o he wise. LOW (HIGH) CASH is a dummy a iable ha equals one i he i m is in he bo om ( op) hal o he cash
a io o o al asse s dis ibu ion p e-me ge , and ze o o he wise. LONG TENURE (SHORT TENURE) is a dummy a iable ha
equals one i he CEO is (no ) in he op decile in e ms o enu e p e-me ge , and ze o o he wise. HIGH CASH COMP (LOW
CASH COMP) is a dummy a iable ha equals one i he p opo ion o o al compensa ion o he CEO paid h ough cash sala y
and bonuses is abo e (below) median p e-me ge , and ze o o he wise. LOW INST INV (HIGH INST INV) is a dummy a iable
ha equals one i he numbe o ins i u ional owne s is below (abo e) median p e-me ge , and ze o o he wise. All eg essions
include me ge × i m as well as me ge ×POST ixed e ec s. Fu he , he eg essions include i m cha ac e is ics (log o al
asse s, le e age, ma ke - o-book, p o i abili y, angibili y, co e age, cu en a io, and a ing ixed e ec s [no ch le el]) used
wi h hei p e ious yea -end alue and loan cha ac e is ics (log loan size, log ma u i y, and indica o a iables o loan pu pose
and loan ypes). p- alues (in pa en heses) a e de e mined using s anda d e o s obus o clus e ing a he i m le el. ***, **, and
* deno e 1%, 5%, and 10% s a is ical signi icance. All a iables a e de ined in Suppo ing In o ma ion Appendix A1.
3.3 Dual holdings
We a gue ha sweep p o isions a e used by lende s o add ess manage ial agency p oblems. Howe e , one conce n
migh be ha ac ions aken by equi y holde s migh be be e sui ed o discipline manage s, which migh no be in he
in e es o deb holde s. Fu he mo e, mos i ms ope a e well abo e hei de aul ba ie . In his case, he con ingen-
cies ha sweeps add ess migh be especially ele an o equi y holde s. This sugges s ha sweep use inc eases mo e
o lende s who simul aneously also hold equi y o he bo owing i m (dual holding).
Fe ei a and Ma os (2012) show ha he bene i o dual holding mainly acc ues o he bank. Cha a e al. (2019)
show ha banks as dual holde s a e less likely o include a capi al expendi u e es ic ion in hei loan con ac . Pey a-
an (2020) in es iga es he impac o inancial epo ing quali y on ins i u ional in es o s’ dual holdings and inds ha
ins i u ional in es o s a e mo e likely o become dual holde s in i ms wi h low epo ing quali y. This sugges s ha
dual holdings migh also o en be ela ed o i ms wi h a po en ially highe deg ee o manage ial en enchmen .
We iden i y lende s who also hold equi y o hei bo owing i m using 13 ilings. We in es iga e he use o sweep
p o isions sepa a ely o i ms wi h and wi hou a lende as dual holde . Table 6 epo s he esul s. In Panel A, we
in e ac he ea men ×pos indica o wi h a dual holding indica o ha is equal o one i he (lead) banks in he
loan syndica e hold a leas 0.5% o he equi y o he bo owing i m in he p e-me ge pe iod. In Panel B, we spli
he sample in o dual holding and non-dual holding banks. The esul s indica e ha banks implemen sweep p o isions
a e educ ions in analys co e age in pa icula when hey hold bo h equi y and deb o he same i m. In e ms o
economic magni udes, he esul s indica e ha i is abou h ee imes mo e likely ha sweep p o isions a e included
pos - ea men in he p esence o dual holde s compa ed o si ua ions whe e banks do no ha e equi y holdings in
he bo owing i ms. No e ha while he e ec is s onge in he p esence o dual holde s, also non-dual holde s a e
signi ican ly mo e likely o include sweep p o isions ollowing a educ ion in analys co e age. O e all, he esul s
indica e ha lende s inc ease sweep use in pa icula when hey a e mos exposed o manage ial weal h exp op ia ion.
4CONCLUSION
We in es iga e how changes in analys co e age a ec he implemen a ion o sweep co enan s in loan con ac s.
Fo his pu pose, we u ilize exogenous changes in analys co e age esul ing om b oke age house me ge s o clo-
su es. We obse e ha an exogenous dec ease in co e age esul s in a mo e in ense use o sweep p o isions in a loan
con ac . This e ec is s onge o i ms wi h poo co po a e go e nance and o i ms wi h lende s as dual holde s.
O e all, ou esul s a e consis en wi h lende s implemen ing sweep co enan s in loan con ac s o add ess manage ial
agency p oblems.
IMBIEROWICZ AND STREITZ 115
TABLE 6 B oke age house me ge s—E ec by dual holdings.
Panel A: E ec by dual holdings—in e ac ion e m
To al sample To al sample To al sample
(1) (2) (3)
SWEEP (0/1) LN(#SWEEP) SWEEP RATIO
POST ×TREATED 0.065*0.098** 0.058***
(0.052) (0.033) (0.008)
POST ×TREATED ×DUAL 0.186*0.274*0.118
(0.095) (0.056) (0.118)
Base e ec s Yes Yes Yes
Fi m con ols Yes Yes Yes
Loan con ols Yes Yes Yes
Me ge ×Pos FE Yes Yes Yes
Me ge × i m FE Yes Yes Yes
Obse a ions 2966 2966 2919
Adj. R20.689 0.737 0.652
Panel B: E ec by dual holdings—sample spli
No dual No dual No dual Dual Dual Dual
(1) (2) (3) (4) (5) (6)
SWEEP (0/1) LN(#SWEEP) SWEEP RATIO SWEEP (0/1) LN(#SWEEP) SWEEP RATIO
POST ×
TREATED
0.063* 0.094** 0.060*** 0.225** 0.337** 0.151**
(0.059) (0.041) (0.007) (0.047) (0.031) (0.021)
Fi m con ols Yes Yes Yes Yes Yes Yes
Loan con ols Yes Yes Yes Yes Yes Yes
Me ge ×Pos
FE
Yes Yes Yes Yes Yes Yes
Me ge × i m
FE
Yes Yes Yes Yes Yes Yes
Obse a ions 2638 2638 2592 326 326 326
Adj. R20.684 0.736 0.644 0.790 0.804 0.803
No e: This able epo s esul s om he es ima ion o a pooled panel eg ession analyzing he use o sweep co enan s a ound
b oke age house me ge s. Fo each me ge , we conside a 2-yea window p io o he me ge (p e-me ge window) and a 2-
yea window a e he me ge (pos -me ge window). We cons uc an indica o a iable (TREATED) o each me ge , which is
equal o one o each i m co e ed by bo h me ging b oke age houses in he p e-me ge window ( ea men sample), and ze o
o he wise. Fo each me ge , POST is a a iable ha is equal o one o he pos -me ge pe iod and ze o o he p e-me ge
pe iod. Bo h a iables a e included as base e ec s in each eg ession. DUAL is de ined as loans o lende s which simul ane-
ously hold a leas 0.5% o equi y o he bo owing i m in he p e-me ge pe iod. POST ×DUAL is included as base e ec
in each eg ession in Panel A. SWEEP (0/1) is a dummy a iable, which equals one i he loan con ac includes a leas one
sweep co enan , and ze o o he wise. LN(#SWEEP) is he log o one plus he numbe o sweep co enan s included in he loan
con ac . SWEEP RATIO is de ined as he numbe o sweep co enan s di ided by he o al numbe o sweep and inancial
co enan s included in he loan con ac . All eg essions include me ge × i m as well as me ge ×POST ixed e ec s. Fu he ,
he eg essions include i m cha ac e is ics (log o al asse s, le e age, ma ke - o-book, p o i abili y, angibili y, co e age, cu -
en a io, and a ing ixed e ec s [no ch le el]) used wi h hei p e ious yea -end alue and loan cha ac e is ics (log loan size,
log ma u i y, and indica o a iables o loan pu pose and loan ypes). p- alues (in pa en heses) a e de e mined using s an-
da d e o s obus o clus e ing a he i m le el. ***, **, and * deno e 1%, 5%, and 10% s a is ical signi icance. All a iables a e
de ined in Suppo ing In o ma ion Appendix A1.
116 IMBIEROWICZ AND STREITZ
Ou indings a e impo an o loan con ac design. Mos o he exis ing li e a u e ocuses on inancial co enan s
and, i a all, includes sweep co enan s only as a by-p oduc in he analyses. Ou esul s indica e ha sweep co enan s
se e an impo an ole in add essing manage ial agency p oblems. Financial co enan s ocus on bo owe pe o -
mance and le e age a ios and igge a shi o con ol igh s o lende s when he inancial condi ion o he i m
de e io a es. Howe e , con ingencies o lende weal h exp op ia ion by managemen exis especially in si ua ions wi h
high manage ial lexibili y and hence need o be add essed h ough o he means, such as sweep co enan s. Con ac -
ing can inc ease he alue o he i m by add essing po en ial agency con lic s. Acco dingly, sweep co enan s dese e
much mo e a en ion han is gi en oday. An analysis o sweep co enan s and i m alue migh be a p omising a ea o
u u e esea ch.
ACKNOWLEDGMENTS
We hank he edi o , Ka hleen Kahle, an anonymous e e ee, and Ma hias E ing, Felix No h, Emilia Ga cia-Appendini,
and pa icipan s a he hi d IWH-FIN-FIRE wo kshop, he 2017 Ge man Finance Associa ion (DGF) mee ings, and
he 2017 FIRS mee ings o aluable commen s and sugges ions. The iews exp essed in his pape a e hose o he
au ho s and do no necessa ily ep esen hose o he Deu sche Bundesbank o he Eu osys em.
Open access unding enabled and o ganized by P ojek DEAL.
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SUPPORTING INFORMATION
Addi ional suppo ing in o ma ion can be ound online in he Suppo ing In o ma ion sec ion a he end o his a icle.
How o ci e his a icle: Imbie owicz, B., & S ei z, D. (2024). Financial deb con ac ing and manage ial
agency p oblems. Financial Managemen ,53, 99–118. h ps://doi.o g/10.1111/ ima.12444
