Estimating the benefits of contractual completeness

Gregor Matvos*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


I provide a revealed-preference-based framework that uses covenant prices and choices to quantitatively study how covenants generate firm benefits by completing debt contracts. I use a rational-expectations-based panel estimator of covenant prices, which does not require quasi-experimental variation, to circumvent the problem of endogenous covenant choices. I find that firms' surpluses exceed the spread paid on a loan. Leverage and interest-rate covenants produce the largest benefits, lending quantitative credence to several standard theories of covenants. Once covenants are chosen, the benefits from fine-tuning them are small, thus rationalizing "boilerplate" covenants. I conclude by discussing the extensions and limitations of my method.

Original languageEnglish (US)
Pages (from-to)2798-2844
Number of pages47
JournalReview of Financial Studies
Issue number11
StatePublished - Nov 2013


  • G12
  • G32
  • K12
  • L11

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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