Snow and Leverage

39 Pages Posted: 1 Nov 2010

See all articles by Xavier Giroud

Xavier Giroud

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Alex Stomper

Humboldt University of Berlin - School of Business and Economics

Arne Westerkamp

Vienna University of Economics and Business - Department of Accounting and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: October 2010

Abstract

Using a sample of highly (over-)leveraged Austrian ski hotels undergoing debt restructurings, we show that reducing a debt overhang leads to a significant improvement in operating performance (return on assets, net profit margin). In particular, a reduction in leverage leads to a decrease in overhead costs, wages, and input costs, and to an increase in sales. Changes in leverage in the debt restructurings are instrumented with Unexpected Snow, which captures the extent to which a ski hotel experienced unusually good or bad snow conditions prior to the debt restructuring. Effectively, Unexpected Snow provides lending banks with the counterfactual of what would have been the ski hotel's operating performance in the absence of strategic default, thus allowing to distinguish between ski hotels that are in distress due to negative demand shocks ("liquidity defaulters") and ski hotels that are in distress due to debt overhang ("strategic defaulters").

Suggested Citation

Giroud, Xavier and Mueller, Holger M. and Stomper, Alex and Westerkamp, Arne, Snow and Leverage (October 2010). NBER Working Paper No. w16497. Available at SSRN: https://ssrn.com/abstract=1699574

Xavier Giroud (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.columbia.edu/~xg2285/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Holger M. Mueller

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
New York, NY 10012-1126
United States
212-998-0341 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~hmueller/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Alex Stomper

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

Spandauer Str. 1
Berlin, D-10099
Germany

Arne Westerkamp

Vienna University of Economics and Business - Department of Accounting and Finance ( email )

Nordbergstraße 15, Bauteil B, 6. Stock
Wien 1090
Austria

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