Do Firms Engage in Risk-Shifting? Empirical Evidence

• 成果类型: Article
• 署名作者: Gilje, Erik P.
• 署名单位: University of Pennsylvania
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhw059
• 发表日期: 2016
• 页码: 2925
• 关键词: capital structure; debt; INVESTMENT; incentives; CHOICE; MODEL

摘要

I empirically test whether firms engage in risk-shifting. Contrary to what risk-shifting theory predicts, I find that firms reduce investment risk when they approach financial distress. To identify the effect of distress on risk-taking, I use a natural experiment with exogenous changes to leverage. Risk reduction is most prevalent among firms that have shorter maturity debt, bank debt, and tighter bank loan financial covenants. These findings suggest that debt composition and financial covenants serve as important mechanisms to mitigate debt-equity agency conflicts, such as risk-shifting, that are not explicitly contracted on.