We consider an optimal risk-sensitive portfolio allocation problem accounting for the possibility of cascading defaults. Default events have an impact on the distress state of the surviving stocks in the portfolio. We study the recursive system of non-Lipschitz quasi-linear parabolic HJB-PDEs...

The presence of strategic customers may force an already financially distressed firm into a death spiral: Sensing the firm's financial difficulty, customers may wait strategically for deep discounts in liquidation sales. In turn, such waiting lowers the firm's profitability and increases the...

This paper examines how a firm's financial distress and the legal environment regarding the ease of bankruptcy reorganization can alter product market competition and supplier-buyer relationships. We identify three effects, predation, bail-out, and abetment, that can change firms' behavior from...