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Debt Covenants and Investment: Response to Gulen, Jens, and Page (2020)

Authors: Sudheer Chava; Michael R. Roberts;

Debt Covenants and Investment: Response to Gulen, Jens, and Page (2020)

Abstract

In a recent working paper, "An application of causal forest in corporate finance: How does financing affect investment?" Gulen, Jens, and Page, April 23 2020, (GJP) challenge the analysis and several conclusions of our paper, "How Does Financing Impact Investment? The Role of Debt Covenants," 2008, (CR). Specifically, GJP claim that our main results are not robust to a more recent machine learning estimation technique called "causal forest," and that covenant violations only affect investment in a small number of distressed firms. Here we show that these, and other claims made by GJP concerning our study, are incorrect. GJP's results are internally inconsistent, inconsistent with other published studies, and unreproducible. We also provide new evidence using the latest econometric techniques, including that suggested by GJP, and more recent data, all of which show the robustness of our original findings.

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
Average
Average
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