Empirical evidence of risk shifting in financially distressed firms

• 成果类型: Article
• 署名作者: Eisdorfer, Assaf
• 署名单位: University of Connecticut
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2008.01326.x
• 发表日期: 2008
• 页码: 609-637
• 关键词: consistent covariance-matrix; CAPITAL STRUCTURE CHOICE; DEBT MATURITY STRUCTURE; corporate-debt; CONDITIONAL HETEROSCEDASTICITY; irreversible investment; VOLATILITY MODELS; STOCK VOLATILITY; Call provisions; AGENCY COSTS

摘要

This paper provides evidence of risk-shifting behavior in the investment decisions of financially distressed firms. Using a real options framework, I show that shareholders' risk-shifting incentives can reverse the expected negative relation between volatility and investment. I test two hypotheses that are consistent with risk-shifting behavior: (i) volatility has a positive effect on distressed firms' investment; (ii) investments of distressed firms generate less value during times of high uncertainty. Empirical evidence using 40 years of data supports both hypotheses. I further evaluate the effect of various firm characteristics on risk shifting, and estimate the costs of the investment distortion.