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Strategic Debt Restructuring and Asset Substitution

Giamouridis, Daniel; Prassa, Chara - 2021

This paper examines whether debt renegotiation mitigates the agency costs of asset substitution. Inspired by the studies of Mella-Barral and Perraudin (1997) and Leland (1998), we have developed an analytical continuous time model of a firm that has the option to switch to a higher risk activity...

Persistent link: https://www.econbiz.de/10013250336

Liquidity, Systemic Risk, and the Bankruptcy Treatment of Financial Contracts

Mokal, Riz - 2016

Persistent link: https://www.econbiz.de/10013002918

Creditor Control Rights, Capital Structure, and Legal Enforcement

Daher, Mai - 2016

I investigate how the effectiveness of the judicial system impacts corporate financing policy through the channel of covenant violations across the world. Financial covenant violations trigger creditors to use their contractual acceleration and termination rights to increase interest rates or...

Persistent link: https://www.econbiz.de/10013004920

Financial Crises, Debt Financing, and Default Risk

Chiu, Wan-Chien - 2015

significant for firms with low credit quality. These findings suggest that the bank supply shock theory helps explain the …

Persistent link: https://www.econbiz.de/10013028200

Optimal Capital Structure with an Equity-for-Guarantee Swap

Yang, Zhaojun - 2019

We study an equilibrium pricing of a new invented equity-for-guarantee swap and optimal capital structure of a firm, which enters into the swap. We present closed-form corporate security prices and guarantee cost, the percentage of the firm's equity allocated by the firm/borrower to an insurer...

Persistent link: https://www.econbiz.de/10012905585

Creditor Rights, Corporate Leverage and Investments, and the Firm Type

Canipek, Aras; Kind, Axel H.; Wende, Sabine - 2021

Stronger creditor rights reduce credit costs and thus may allow firms to increase leverage and investments, but also increase distress costs and thus may prompt firms to lower leverage and undertake risk-reducing but unprofitable investments. Using a German bankruptcy law reform, on average, we...

Persistent link: https://www.econbiz.de/10013222495

The Economic Costs of Financial Distress

Custodio, Claudia; Ferreira, Miguel A.; … - 2022

We estimate the economic costs of financial distress due to lost sales, by exploiting cross-supplier variation in real estate assets and leverage and the timing of real estate shocks. We show that for the same client buying from different suppliers, its purchases from distressed suppliers...

Persistent link: https://www.econbiz.de/10013492242

Are Corporate Default Probabilities Consistent with the Static Tradeoff Theory?

Hovakimian, Armen - 2011

Default probability plays a central role in the static tradeoff theory of capital structure. We directly test this … theory by regressing the probability of default on proxies for costs and benefits of debt. Contrary to predictions of the … theory, firms with higher bankruptcy costs, i.e., smaller firms and firms with lower asset tangibility, choose capital …

Persistent link: https://www.econbiz.de/10013122204

Are Corporate Default Probabilities Consistent with the Static Tradeoff Theory?

Hovakimian, Armen - 2011

Probability of default plays a central role in the static tradeoff theory of capital structure. We provide a direct … test of this theory by regressing the probability of default, measured by S&P credit ratings and Moody's KMV Expected …. Contrary to predictions of the theory, firms with high bankruptcy costs, that is smaller firms and firms with lower asset …

Persistent link: https://www.econbiz.de/10013122234

Modelling Default Correlations in a Two-Firm Model with Dynamic Leverage Ratios

Chiarella, Carl - 2012

This article provides a generalized two-firm model of default correlation, based on the structural approach that incorporates interest rate risk. In most structural models default is driven by the firms' asset dynamics. In this article, a two-firm model of default is instead driven by the...

Persistent link: https://www.econbiz.de/10013099258