Existing research shows that bidder default risk increases following acquisitions due to a rise in post-acquisition leverage and managerial risk-taking actions offsetting the potential for asset diversification. This study examines whether the risk effects of acquiring distressed targets are...

Upstream producers that possess market power, sell forwards with a lengthy duration to regional electricity companies (REC). As part of the liberalization of the electricity market, RECs have been privatized and exposed to a possible bankruptcy threat if spot prices have fallen below their...

Are all covenants equally effective at reducing the bondholder-shareholder conflict? Examining the most frequently used bond covenants, we document that four out of 24 restrictions are associated with significantly higher bankruptcy risk. The use of these Default Indicating covenants can be...

We develop a unified framework to connect cash holding, debt maturity and mergers and acquisitions. We provide empirical support for four internally consistent predictions: i) equity and debt values of highly distressed firms are more sensitive to cash reserve than those of healthy firms; ii)...

In this study we develop a theoretical model for ultimate loss-given default in the Merton (1974) structural credit risk model framework, deriving compound option formulae to model differential seniority of instruments, and incorporating an optimal foreclosure threshold. We consider an extension...

Secondary buyouts (SBOs) represent more than 50 percent of all buyouts in 2018. Even though general partners argue that SBOs are less attractive investment targets for buyouts and some empirical indication against an outperformance of SBOs exists, the share of SBOs continuously increases....

Using Ohlson's (1980) measure of bankruptcy risk (O-Score), Dichev (1998, The Journal of Finance 53, 1131−1147) documents a bankruptcy risk anomaly in which firms with high bankruptcy risk earn lower than average returns. This study first demonstrates that the negative association between...

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...

We examine how firm characteristics, particularly the degree of firm complexity and the firm's need for specialty knowledge, affect the relationship between corporate governance and the risk of bankruptcy. We find that having larger boards reduces the risk of bankruptcy only for complex firms....