The Determinants of Financial Covenants on Private Debt: The Case of Listed French Companies

Abstract

The purpose of this paper is to identify factors that influence financial covenants in private debt agreements of listed French companies. We test whether borrower characteristic influence the presence of financial covenants in debt contract. Using a sample of large listed French firms over the period of 2003-2009, we find that profitable firms with growth options are likely to include financial covenants on their syndicated private debt. We also test whether debt characteristic influence the financial covenants in private debt. We find that type of debt and security dummy influence significantly financial covenants. Our results are consistent with prior studies in general.

Keywords: financial covenants, private debt, borrower characteristic, debt characteristic