Debt enforcement,investment, and risk taking across countries

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder–debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms’ investment and risk depends on the firm-specific probability of default. A differences-in-differences analysis of firms’ investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.     

Innovation, Differentiation, and the Choice of an Underwriter: Evidence from Equity-Linked Securities

Investment banks imitate other bank’s innovative corporatesecurities and compete with the innovator to underwrite newissues. This article uses data of all the corporate offeringsof equity-linked and derivative securities in the SecuritiesData Company (SDC) to estimate the issuer’s demand ofunderwriting services provided by investment banks across differentvarieties of securities. It finds that the demand for the innovator’svariety is larger than the imitators’. This demand advantagedecreases with time and faster for securities that appear laterin a sequence of innovations. Imitation becomes less attractivelater in the sequence as information from earlier deals spills-overto all banks.     

Dynamic debt runs and financial fragility: Evidence from the 2007 ABCP crisis

We use the 2007 asset-backed commercial paper (ABCP) crisis as a laboratory to study the determinants of debt runs. Our model features dilution risk: maturing short-term lenders demand higher yields in compensation for being diluted by future lenders, making runs more likely. The model explains the observed tenfold increase in yield spreads leading to runs and the positive relation between yield spreads and future runs. Results from structural estimation show that runs are very sensitive to leverage, asset values, and asset liquidity, but less sensitive to the degree of maturity mismatch, the strength of guarantees, and asset volatility.     

Quantifying private benefits of control from a structural model of block trades

We study the determinants of private benefits of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb and Panunzi (2000) explicitly accounting for both block premiums and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fight a potential tender offer for the target's stock. We find evidence of large private benefits of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash flow hypothesis.