Corporate Spin-Offs, Bankruptcy, Investment, and the Value of Debt
In 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.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||01 Oct 2000|
|Date of revision:|
|Publication status:||Published in Insurance: Mathematics and Economics, October 2000, vol. 27, pp. 229-235|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
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.:
- 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.
- 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.
- 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.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- 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.
- 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.
- 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.
- Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
- Scott, James H, Jr, 1977. "On the Theory of Conglomerate Mergers," Journal of Finance, American Finance Association, vol. 32(4), pages 1235-50, September.
When requesting a correction, please mention this item's handle: RePEc:isu:genres:1898. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer)
If references are entirely missing, you can add them using this form.