The Flip Side of Financial Synergies: Coinsurance Versus Risk Contamination

• 成果类型: Article
• 署名作者: Banal-Estanol, Albert; Ottaviani, Marco; Winton, Andrerw
• 署名单位: Pompeu Fabra University; Barcelona School of Economics; Bocconi University; University of Minnesota System; University of Minnesota Twin Cities
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hht049
• 发表日期: 2013
• 页码: 3142
• 关键词: optimal capital structure; corporate diversification; SECURED DEBT; bankruptcy; mergers; COSTS; MARKET; liquidation; CONTRACTS; BANK

摘要

This paper characterizes when joint financing of two projects through debt increases expected default costs, contrary to conventional wisdom. Separate financing dominates joint financing when risk-contamination losses-that are associated with the contagious default of a well-performing project that is dragged down by the other project's poor performance-outweigh standard coinsurance gains. Separate financing becomes more attractive than joint financing when the fraction of returns lost under default increases and when projects have lower mean returns, higher variability, more positive correlation, and more negative skewness. These predictions are broadly consistent with evidence on conglomerate mergers, spinoffs, project finance, and securitization.