Despite high growth rates in recent decades, Burkina Faso is still a poor country. The government acknowledges the need for a stronger commitment to reach the Millennium Development Goals (MDGs), particularly regarding the reduction of poverty. At the same time, the Burkinabe budget deficit has...

We present a novel theory to explain the puzzling issue regarding why certain firms in financial distress, that must renegotiate their debt prefer a formal bankruptcy procedure, which is more costly, over direct negotiations with their debtholders. Specifically, we show that claimholders’...

Given equity’s convex payoff function, shareholders can transfer wealth from bondholders by increasing firm risk. We test the existing hypothesis that convertible debt reduces this classical agency problem of risk-shifting. First, we derive a measure of shareholders’ risk incentives induced...

We analyze firms’ entry, production and hedging decisions under imperfect competition. We consider an oligopoly industry producing a homogeneous output in which risk-averse firms face an entry cost upon entering the industry, and then compete in Cournot with one another. Each firm faces...

In this paper, we analyze whether the state of the limit order book affects future price movements in line with what recent theoretical models predict. We do this in a linear vector autoregressive system which includes midquote return, trade direction and variables that are theoretically...

We use the maximum likelihood (ML) estimation approach to estimate the default barriers from market values of equities for a sample of 762 public industrial Canadian firms. The ML approach allows us to estimate the asset instantaneous drift, volatility and barrier level simultaneously, when the...

The contingent claims analysis of the firm financing often presents a debt renegotiation game with a passive bank which does not use strategically its capability to force liquidation, contrary towhat is observed in practice. The first purpose of this paper is to introduce more strategic bank...

Can inertia in terminating unsuccessful loans be due to the multiplicity of lenders in loan arrangements? Can a lender reschedule, betting against his odds? We show that fear of being last in a liquidation run prevents the aggregation of the lenders' information about the value of continuation....

Cash holdings as a proportion of total assets of U.S. corporations have roughly doubled between 1971 and 2006. Prior research attributes the large cash increase to a rise in firms’ idiosyncratic risk. We investigate two mechanisms by which increased idiosyncratic risk can lead to higher cash...

In a one-period setting Green (1984) demonstrates that convertible debt perfectly mitigates the asset substitution problem by curbing shareholders’ incentive to increase risk. This is because claimholders design the capital structure precisely when the risk-shifting opportunity is available....