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We study the effect of weakening creditor rights on distress risk premia via a bankruptcy reform that shifts bargaining power in financial distress toward shareholders. We find that the reform reduces risk factor loadings and returns of distressed stocks. The effect is stronger for firms with lower firm-level shareholder bargaining power. An increase in credit spreads of riskier relative to safer firms, in particular for firms with lower firm-level shareholder bargaining power, confirms a shift in bargaining power from bondholders to shareholders. Out-of-sample tests reveal that a reversal of the reform's effects leads to a reversal of factor loadings and returns.
We study the effect of weakening creditor rights on distress risk premia via a bankruptcy reform that shifts bargaining power in financial distress toward shareholders. We find that the reform reduces risk factor loadings and returns of distressed stocks. The effect is stronger for firms with lower firm-level shareholder bargaining power. An increase in credit spreads of riskier relative to safer firms, in particular for firms with lower firm-level shareholder bargaining power, confirms a shift in bargaining power from bondholders to shareholders. Out-of-sample tests reveal that a reversal of the reform's effects leads to a reversal of factor loadings and returns.
We study the dispersion of debt maturities across time, which we call "granularity of corporate debt,'' using a model in which a firm's inability to roll over expiring debt causes inefficiencies, such as costly asset sales or underinvestment. Since multiple small asset sales are less costly than a single large one, firms diversify debt rollovers across maturity dates. We construct granularity measures using data on corporate bond issuers for the 1991-2012 period and establish a number of novel findings. First, there is substantial variation in granularity in that we observe both very concentrated and highly dispersed maturity structures. Second, observed variation in granularity supports the model's predictions, i.e. maturities are more dispersed for larger and more mature firms, for firms with better investment oppo