The Information Value of Distress

• 成果类型: Article
• 署名作者: Hilpert, Christian; Hirth, Stefan; Szimayer, Alexander
• 署名单位: Sun Yat Sen University; Aarhus University; Danish Finance Institute; University of Hamburg
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4632
• 发表日期: 2024
• 关键词: Asymmetric information; learning dynamics; strategic interaction; quantitative debt models

摘要

We propose a novel framework for investigating learning dynamics on the debt market. Observing a firm's survival of apparently distressed periods, the market eliminates asset value estimates that are too low to be consistent with the observed survival. Therefore, the firm's cost of debt becomes lower for given financials. Relative to a perfect information setting, the firm strategically delays default to benefit from a subsequently lower cost of debt. Default comes as a surprise, as it reveals the currently worst possible asset value as correct. The surprise effect is mitigated for debt with higher performance sensitivity and for lower ex ante information asymmetry.