Why Leverage Affects Pricing

Posted: 8 Aug 2008

See all articles by Pegaret Pichler

Pegaret Pichler

Northeastern University, D’Amore-McKim School of Business, Finance Area

Alex Stomper

Humboldt University of Berlin - School of Business and Economics

Christine Zulehner

University of Vienna - Faculty of Business, Economics, and Statistics; Télécom Paris; Austrian Institute of Economic Research (WIFO); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2008

Abstract

We explain and provide evidence for effects of leverage on pricing. Our model identifies two effects that either counteract or reinforce each other, depending on the debt maturity structure: (i) firms set higher prices (underinvest in market share) if they have more debt, and (ii) firms engage in dynamic risk-shifting by setting lower (higher) prices if the current debt obligation will be higher (lower) in the next period than in the present period. Using a unique dataset of owner-managed hotels in Austrian ski resorts, we provide empirical evidence of both effects.

Keywords: D43, G31, L83

Suggested Citation

Pichler, Pegaret and Stomper, Alex and Zulehner, Christine, Why Leverage Affects Pricing (July 2008). The Review of Financial Studies, Vol. 21, Issue 4, pp. 1733-1765, 2008, Available at SSRN: https://ssrn.com/abstract=1212069 or http://dx.doi.org/hhn048

Pegaret Pichler (Contact Author)

Northeastern University, D’Amore-McKim School of Business, Finance Area ( email )

Boston, MA 02115
United States

HOME PAGE: http://www.northeastern.edu/pegaretpichler

Alex Stomper

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Christine Zulehner

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Oskar-Morgenstern-Platz 1
Wien, 1090
Austria

HOME PAGE: http://homepage.univie.ac.at/christine.zulehner

Télécom Paris ( email )

19 Place Marguerite Perey
Palaiseau, 91120
France

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
603
PlumX Metrics