Michael Schwert

Assistant Professor of Finance
The Wharton School
3620 Locust Walk-SHDH 2451
University of Pennsylvania
Philadelphia, PA 19104
Tel: 215-898-7770

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Institutional Affiliation: University of Pennsylvania

NBER Working Papers and Publications

May 2020Interest Rates and the Design of Financial Contracts
with Michael R. Roberts: w27195
We show that variation in short-term nominal interest rates produces an endogenous response in the design of and commitment to corporate loan contracts. Interest rates are negatively related to the cash flow rights and positively related to the control rights granted to creditors. An implication of this contractual response is a sharp increase in the ex post renegotiation of contracts originated in low interest rate environments, as well as a muted effect of interest rate variation on the cost of debt capital. Our findings illustrate how the design of financial contracts in practice reflects a multi-dimensional tradeoff among contract features that aligns incentives and apportions risk among the contracting parties in a state-contingent manner.
October 2017The Economics of PIPEs
with Jongha Lim, Michael S. Weisbach: w23967
This paper considers a sample of 3,001 private investments in public equities (PIPEs). Issuing firms tend to be small and poorly performing, so have limited access to traditional sources of finance. To attract capital, they offer shares in a PIPE at a substantial discount to the market price, along with warrants and a collection of other rights. Because of the discount at issuance, PIPE returns decline with the holding period, which itself is a function of registration status and liquidity of the shares issued in the PIPE. Assuming that the PIPE investor sells 10% of volume each day following the issuance, the average PIPE investor holds the stock for 384 days and earns an abnormal return of 21.2%. More risky firms tend to raise capital from relatively risk tolerant investors such as hedg...

Published: Jongha Lim & Michael Schwert & Michael S. Weisbach, 2019. "The Economics of PIPEs," Journal of Financial Intermediation, .

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