Optimal capital structure and bankruptcy cascades

Material type: 文書・図像類

Author: Nishihara, Michiほか

Publisher: Graduate School of Economics, Osaka University

Publication date: 2020-06

Material Format: Paper

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Note (General)：: We examine two firms' strategic choices of capital structure in the presence of negative bankruptcy spillovers. The low-profitability firm(denoted by ...

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Paper

Material Type: 文書・図像類
Title: Optimal capital structure and bankruptcy cascades
Author/Editor: Nishihara, Michi
Shibata, Takashi
Author Heading: Nishihara, Michi
https://nrid.nii.ac.jp/nrid/1000020456940
Shibata, Takashi
https://nrid.nii.ac.jp/nrid/1000070372597
Publication, Distribution, etc.: Graduate School of Economics, Osaka University
Publication Date: 2020-06
Publication Date (W3CDTF): 2020-06
Periodical title: Discussion Papers In Economics And Business
No. or year of volume/issue: 20-10
Volume: 20-10
Pages: 1-39
Text Language Code: eng
Subject Heading: capital structure
bankruptcy spillovers
contagion
herding
real options
Target Audience: 一般
Note (General): We examine two firms' strategic choices of capital structure in the presence of negative bankruptcy spillovers. The low-profitability firm(denoted by firm L) that bankrupts earlier affects the high-profitability firm(denoted by firm H). Against negative bankruptcy spillovers, firm H takes either of the two contrasting responses: decreasing leverage to prepare for operations in the worse cash flow scenario after firm L's bankruptcy or in-creasing leverage to bankrupt simultaneously with firm L. Firm H takes the simultaneous bankruptcy strategy when the tax benefits of increased debt dominate the cash flows from operations after firm L's bankruptcy. With more negative bankruptcy spillovers, a smaller profitability difference, and lower volatility, firm H is more likely to choose the simultaneous bankruptcy strategy. The simultaneous bankruptcy equilibrium shows a novel mechanism of bankruptcy cascades through firms' strategic choices of capital structure with negative bankruptcy spillovers. This mechanism can potentially explain the empirical findings of bankruptcy contagion and herding behavior for corporate financial policies.
References (URI): http://www2.econ.osaka-u.ac.jp/econ_society/dp/2010.pdf
URI
http://www2.econ.osaka-u.ac.jp/econ_society/dp/2010.pdf
Data Provider (Database): 国立情報学研究所 : 学術機関リポジトリデータベース（IRDB）（機関リポジトリ）
https://irdb.nii.ac.jp
Original Data Provider (Database): 大阪大学 : 大阪大学学術情報庫　桜華