Snow and Leverage

49 Pages Posted: 27 Dec 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: December 2010

Abstract

This paper examines whether reducing a debt overhang improves borrowers' operating performance using a sample of distressed and highly overleveraged Austrian ski hotels undergoing debt restructurings. The vast majority of the ski hotels experience substantial debt forgiveness, resulting in reductions in leverage of about 23% on average. These reductions in leverage, in turn, bring about statistically and economically significant improvements in operating performance of about 28% on average. Changes in leverage during the debt restructurings are instrumented with the level of snow in the years prior to the debt restructurings. The effect of snow is both statistically and economically significant: a one-standard deviation increase in snow is associated with a reduction in leverage of about 23%.

Keywords: Debt Forgiveness, Debt Overhang, Debt Renegotiation, Debt Restructuring

JEL Classification: G32, G34

Suggested Citation

Giroud, Xavier and Mueller, Holger M. and Stomper, Alex and Westerkamp, Arne, Snow and Leverage (December 2010). CEPR Discussion Paper No. DP8148. Available at SSRN: https://ssrn.com/abstract=1729567

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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