Contact

Mon, 01 Jan 0001 00:00:00 +0000

Address:

HEC Paris
W2-22, Department of Finance
1 Rue de la Libération
Jouy-en-Josas, 78351, France

Email: mian.liu@hec.edu

Website: mianliu027.github.io

Research

Mon, 01 Jan 0001 00:00:00 +0000

Job Market Paper

The Fading Tripwire: Theory and Structural Estimates of Creditor Control Rights
May 2026.

Abstract

This paper explains and quantifies the secular decline of financial covenants in private debt markets. Using a panel of U.S. syndicated loans from 1996 to 2023, I document that the annual incidence of covenant violations declines from 20% to below 5% over two decades, while the creditor intervention rate following a violation rises from 40% to over 70%. Crucially, this decline is accompanied by a reallocation across the micro-channels of creditor control: managerial discipline has weakened considerably while investment conservatism have become more important. I develop a micro-founded optimal contracting model that endogenizes covenant design through moral hazard, endogenous signal acquisition, and the contingent allocation of control rights. I structurally estimate the model using the Simulated Method of Moments, targeting causally identified moments from the reduced-form literature. The estimates reveal three forces behind the secular decline: a moderate easing of moral hazard frictions, improved signal informativeness, and a shift in the relative importance of the micro-mechanisms of creditor intervention. Together, these shifts characterize financial covenants as a fading tripwire: an alarm mechanism that is increasingly rarely set and functioning differently when triggered.

Award

FIRS - JFI 2026 Best Student Paper Award.

Teaching

Mon, 01 Jan 0001 00:00:00 +0000

At HEC Paris

Financial Economics (M1)
Course Instructor, Fall 2023. Syllabus.
Tutorial Instructor, Fall 2022. Syllabus.

Mian Liu

Contact

Research

Job Market Paper

Teaching

At HEC Paris