Corporate spin-offs, bankruptcy, investment, and the value of debt
AbstractIn a risk-neutral stochastic environment where bankruptcy is possible, it is well-established that coinsurance incentives may lead creditors to prefer mergers over spin-offs, while shareholders may prefer spin-offs. This paper shows that there are two distinct reasons for this. One is due to the concavity of the debt payoff function in the face value of the debt, while the other arises from imperfect covariation in ultimate firm values. For the latter reason, conventional measures of covariation are not sufficient to evaluate the impact on ex-ante debt value. Also considered are the effects of mergers and spin-offs on investment decisions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 27 (2000)
Issue (Month): 2 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505554
Other versions of this item:
- Hennessy, David A., 2000. "Corporate Spin-Offs, Bankruptcy, Investment, and the Value of Debt," Staff General Research Papers 1898, Iowa State University, Department of Economics.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Larry G. Epstein & Stephen M. Tanny, 1980. "Increasing Generalized Correlation: A Definition and Some Economic Consequences," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 16-34, February.
- Saman Majd & Stewart C. Myers, 1987. "Tax Asymmetries and Corporate Income Tax Reform," NBER Chapters, in: Taxes and Capital Formation, pages 93-96 National Bureau of Economic Research, Inc.
- Scott, James H, Jr, 1977. "On the Theory of Conglomerate Mergers," Journal of Finance, American Finance Association, vol. 32(4), pages 1235-50, September.
- Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
- Boland, Philip J. & Proschan, Frank, 1988. "Multivariate arrangement increasing functions with applications in probability and statistics," Journal of Multivariate Analysis, Elsevier, vol. 25(2), pages 286-298, May.
- Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
- Higgins, Robert C & Schall, Lawrence D, 1975. "Corporate Bankruptcy and Conglomerate Merger," Journal of Finance, American Finance Association, vol. 30(1), pages 93-113, March.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
- Hennessy, David A. & Saak, Alexander E. & Babcock, Bruce A., 2003. "Fair Value Of Whole-Farm And Crop-Specific Revenue Insurance," 2003 Annual meeting, July 27-30, Montreal, Canada 21988, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.