Showing 1 - 10 of 371
This paper analyses the interaction of financing and output market decisions in an oligopolistic setting. We integrate two ideas that have been analysed separately in previous work: some authors argue that due to risk-shifting, debt (leverage) makes a firm 'aggressive' in its output market;...
Persistent link: https://www.econbiz.de/10005504397
We conduct a theoretical and empirical investigation of the impact of bankruptcy codes on firms’ capital-structure choices. In our theoretical framework, costs of financial distress are endogenously determined as a function of the bankruptcy code. Anticipated liquidation values emerge as the...
Persistent link: https://www.econbiz.de/10005504655
Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling finding can be explained by the precautionary motive for...
Persistent link: https://www.econbiz.de/10004980203
We consider the debt capacity of a risky asset when debt is being rolled over and there is a liquidation cost in case of default. We show that debt capacity depends on how information about the quality of the asset is revealed. When the information structure is based on “optimistic”...
Persistent link: https://www.econbiz.de/10004980204
We develop a dynamic model to assess the effects of liquidity and leverage requirements on banks' insolvency risk. The model features endogenous capital structure, liquid asset holdings, payout, and default decisions. In the model, banks face taxation, flotation costs of securities, and default...
Persistent link: https://www.econbiz.de/10011165669
Firms that buy distressed and bankrupt companies or some of these companies’ assets earn excess returns that are at least 1.6 percentage points higher than when they make regular acquisitions. These returns come at the expense of the target firm’s shareholders, while overall wealth gains are...
Persistent link: https://www.econbiz.de/10011083439
Financial constraints are fundamental to empirical research in finance and economics. We propose two novel tests to evaluate how well measures of financial constraints actually capture constraints. We find that firms classified as constrained according to five popular measures do not in fact...
Persistent link: https://www.econbiz.de/10011145461
Debt with many creditors is analysed in a continuous-time pricing model of the levered firm. We specifically allow for debtor opportunism vis-à-vis a non-coordinated group of creditors, in form of repeated strategic renegotiation offers and default threats. We show that the creditors' initial...
Persistent link: https://www.econbiz.de/10005662221
This Paper examines how the investment of financially constrained firms varies with their level of internal funds. We develop a theoretical model of optimal investment under financial constraints. Our model endogenizes the costs of external funds and allows for negative levels of internal funds....
Persistent link: https://www.econbiz.de/10005789183
The restructuring of a bankrupt company often entails its sale. This Paper suggests a way to sell the company that maximizes the creditors' proceeds. The key to this proposal is the option left to the creditors to retain a fraction of the shares of the company. Indeed, by retaining the minority...
Persistent link: https://www.econbiz.de/10005791603