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Snow and Leverage

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  • Giroud, Xavier
  • Mueller, Holger M
  • Stomper, Alexander
  • Westerkamp, Arne

Abstract

This paper examines whether reducing a debt overhang improves borrowers' operating performance using a sample of distressed and highly overleveraged Austrian ski hotels undergoing debt restructurings. The vast majority of the ski hotels experience substantial debt forgiveness, resulting in reductions in leverage of about 23% on average. These reductions in leverage, in turn, bring about statistically and economically significant improvements in operating performance of about 28% on average. Changes in leverage during the debt restructurings are instrumented with the level of snow in the years prior to the debt restructurings. The effect of snow is both statistically and economically significant: a one-standard deviation increase in snow is associated with a reduction in leverage of about 23%.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8148.

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Date of creation: Dec 2010
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Handle: RePEc:cpr:ceprdp:8148

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Related research

Keywords: Debt Forgiveness; Debt Overhang; Debt Renegotiation; Debt Restructuring;

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References

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Cited by:
  1. Dirk G Baur & Isaac Miyakawa, 2014. "The Stock Market, the Real Economy and Contagion," Working Paper Series 179, Finance Discipline Group, UTS Business School, University of Technology, Sydney.

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