Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between Merton-type and Black-Cox-type structural default models. Our...

Lehman's bankruptcy has triggered calls for new approaches to rescuing systemically important institutions. This essay assesses and confirms the need for a new approach. It identifies the inadequacies of the Bankruptcy Code and advocates an approach modeled on the current regime governing...

This study introduces a real option model to investigate how fiscal policy affects a representative firm's investment decision and to measure its welfare effects. On the one hand, the effects of financial instability on the optimal investment timing and on the probability of default are studied....

This short article studies the tax effects on a start-up investment decision under uncertainty. Since the representative firm can decide both when to invest and how much to borrow, the distortive effects are twofold. We thus show that the deadweight loss (namely, the ratio between the welfare...

This paper examines the efficacy of carbon tax policies in view of the interactions between such policies and the firm’s carbon efficiency and financing decisions. We show that because the government, unlike capital markets, does not price its policy’s risk by taking into account default...

In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax...

In this article we use a stochastic model with one representative firm to study business tax policy under default risk. We will show that, for a given tax rate, the government has an incentive to reduce (increase) financial instability and default costs if its objective function is welfare (tax...

Policy efforts to revitalise entrepreneurship and investment in Spain are key to generating growth and new jobs. The government has a substantial reform program to make it easier to do business in Spain, which should in some cases be deepened. Boosting economic growth requires a new generation...

This study compares the valuations of debtors emerging from Chapter 11 with the valuations of similar publicly traded firms. For each debtor in my sample, I collect valuation experts' enterprise and equity valuations that are judicially confirmed and based on managements' published financial...

This paper examines the negative externalities that may occur when a large bank fails, describes the nature of those externalities, and explores whether they may be greater in a case involving a large cross-border banking organization. The analysis suggests that the chief negative externalities...