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Snow and Leverage

Author

Listed:
  • Xavier Giroud
  • Holger M. Mueller
  • Alex Stomper
  • Arne Westerkamp

Abstract

Based on a sample of highly leveraged Austrian ski hotels undergoing debt restructurings, we show that reducing a debt overhang leads to a significant improvement in operating performance. Changes in leverage in the debt restructurings are instrumented with Unexpected Snow, which captures the extent to which a ski hotel experienced unusually good or bad snow conditions prior to the debt restructuring. Unexpected Snow provides lending banks with the counterfactual of what would have been the ski hotel's operating performance in the absence of strategic default, allowing them to distinguish between ski hotels that are in distress due to negative demand shocks ("liquidity defaulters") and those that are in distress due to debt overhang ("strategic defaulters"). The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Xavier Giroud & Holger M. Mueller & Alex Stomper & Arne Westerkamp, 2012. "Snow and Leverage," The Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 680-710.
    • Handle: RePEc:oup:rfinst:v:25:y:2012:i:3:p:680-710
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr113
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    Cited by:

    1. Corina Burunciuc & Halit Gonenc, 2020. "Reforms Protecting Minority Shareholders and Firm Performance: International Evidence," JRFM, MDPI, vol. 14(1), pages 1-24, December.
    2. 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.
    3. Gianpaolo Parise, 2016. "Threat of entry and debt maturity: evidence from airlines," BIS Working Papers 556, Bank for International Settlements.
    4. Donald E. Bowen III & Laurent Frésard & Jérôme P. Taillard, 2017. "What’s Your Identification Strategy? Innovation in Corporate Finance Research," Management Science, INFORMS, vol. 63(8), pages 2529-2548, August.
    5. James R. Brown & Matthew T. Gustafson & Ivan T. Ivanov, 2021. "Weathering Cash Flow Shocks," Journal of Finance, American Finance Association, vol. 76(4), pages 1731-1772, August.
    6. Ioannis Asimakopoulos & Panagiotis K. Avramidis & Dimitris Malliaropulos & Nickolaos G. Travlos, 2016. "Moral hazard and strategic default: evidence from Greek corporate loans," Working Papers 211, Bank of Greece.
    7. John P. Berns & Maria Figueroa-Armijos & Serge P. da Motta Veiga & Timothy C. Dunne, 2020. "Dynamics of Lending-Based Prosocial Crowdfunding: Using a Social Responsibility Lens," Journal of Business Ethics, Springer, vol. 161(1), pages 169-185, January.
    8. Dongil D. Keum, 2020. "Cog in the wheel: Resource release and the scope of interdependencies in corporate adjustment activities," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 175-197, February.
    9. Panagiotis Avramidis & Ioannis Asimakopoulos & Dimitris Malliaropulos, 2021. "Disrupted lending relationship and borrower's strategic default: evidence from the tourism industry during the Greek economic crisis," Working Papers 285, Bank of Greece.
    10. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of firm size on the leverage–performance relationship during the financial crisis of 2007–2009," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 1-29.
    11. Lars Schweizer & Andreas Nienhaus, 2017. "Corporate distress and turnaround: integrating the literature and directing future research," Business Research, Springer;German Academic Association for Business Research, vol. 10(1), pages 3-47, June.
    12. Ali I. El Saleh & Doureige J. Jurdi, 2021. "Stock performance under alternative Shariah screening methods: Evidence from Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4339-4388, September.
    13. Muermann, Alexander & Rauter, Thomas, 2016. "Prestige and loan pricing," CFS Working Paper Series 544, Center for Financial Studies (CFS).
    14. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of leverage on performance: Domestically-oriented versus internationally-oriented firms," Research in International Business and Finance, Elsevier, vol. 34(C), pages 265-280.
    15. Orhan Akisik & Graham Gal, 2014. "Financial performance and reviews of corporate social responsibility reports," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 25(3), pages 259-288, December.
    16. David Yechiam Aharon & Yossi Yagil, 2019. "The Impact of Financial Leverage on the Cost of Equity," International Journal of Economics and Financial Issues, Econjournals, vol. 9(2), pages 175-188.
    17. Arito ONO & Yukihiro YASUDA, 2017. "Forgiveness Versus Financing: The determinants and impact of SME debt forbearance in Japan," Discussion papers 17086, Research Institute of Economy, Trade and Industry (RIETI).
    18. Pandey, Rakesh & Vithessonthi, Chaiporn & Mansi, Mansi, 2015. "Busy CEOs and the performance of family firms," Research in International Business and Finance, Elsevier, vol. 33(C), pages 144-166.
    19. Likitwongkajon, Napaporn & Vithessonthi, Chaiporn, 2020. "Do foreign investments increase firm value and firm performance? Evidence from Japan," Research in International Business and Finance, Elsevier, vol. 51(C).

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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