SummaryThis paper examines the German IPO pricing process which combines bookbuilding with a liquid pre-IPO when-issued market. We find no partial adjustment phenomenon, as has been documented for U.S. IPOs. We thus find no evidence that bookbuilding provides information for IPO pricing, beyond the information that is required to set preliminary price ranges. Once price ranges are set, when-issued trading commences and indicates how IPOs should be priced in the primary market. However, the evidence suggests that such trading does not fully supplant information gathering through bookbuilding.

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").

The author analyzes banks' incentives to acquire expertise in judging the creditworthiness of borrowers in an industry with uncertain business conditions. The analysis shows that industry expertise enables banks to extract rents proportional to their exposure to industry-specific credit risk. This exposure is in turn determined by the number of banks aiming to focus on lending to an industry. In equilibrium, the industry receives funding from a limited number of banks with industry expertise, as well as from a competitive fringe of financiers without such expertise. The equilibrium yields testable predictions about the concentration of bank lending to an industry, and about the correlation between this concentration and the recovery rates, default rates, and interest rates of bank loans.bank lending, market power, industry expertise, credit risk

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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 skihotel'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").