Private Equity restructuring of companies using debt finance has been criticised for increasing financial distress and bankruptcy in the corporate sector and this was especially so in the aftermath of the financial crisis. We build a unique data set comprising the population of over eight...

Current corporate risk management theories predict that young firms should hedge more than the established ones. However, the claim is not supported by empirical observations, which also present mixed evidence on whether hedging creates value. This paper attempts to address this puzzle by...

Within the context of expected utility and in a discrete loss setting, we provide a complete account of the demand for insurance by strictly-risk averse agents and risk-neutral firms when they enjoy limited liability. When exposed to a bankrupting, binary loss and under actuarially fair prices,...

We analyze the stability of efficiency rankings of German universal banks between 1993 and 2004. First, we estimate traditional efficiency scores with stochastic cost and alternative profit frontier analysis. Then, we explicitly allow for different risk preferences and measure efficiency with a...

We study risk-shifting behavior in a laboratory experiment, a setup that overcomes methodological hurdles faced by empiricists in the past. The participants are high-level managers. We observe risk shifting in a simple setup, but less in a setup with a continuation value. Reputation effects also...

When lenders gain control rights in technical default, they influence corporate operating decisions. We develop a novel measure of operational risk-taking that utilizes industry-specific data on corporate operations. Using a regression discontinuity design, we find that borrowers reduce...

We present a stochastic simulation model for estimating forward-looking corporate probability of default and loss given default. We formulate the model in a discrete time frame, apply capital-budgeting techniques to define the relationships that identify the default condition, and solve the...

Managerial incentives are skewed in non-listed funds under finite horizons. Compensation structures are only indirectly related to shareholder wealth maximization when share prices are unobservable. Liquidity options for investors are limited in the absence of an exchange listing. Using a...

We analyze theoretically how financial synergies among bank affiliates affect banks' choice of organizational structure in branches or subsidiaries characterized by different arrangements for internal insurance against affiliates' default. Financial synergies may be generated by reduced default...