Snow and Leverage

Giroud, Xavier; Mueller, Holger M.; Stomper, Alex; Westerkamp, Arne

doi:10.1093/rfs/hhr113

Cited by 85 publications

(36 citation statements)

References 22 publications

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“…7.3.3 Gap 9: Potential confounding and endogeneity Finally, a common deficit of empirical performance analysis is the danger of endogeneity found in research models. The reversed causality problem, as discussed by Barker et al (2001) and Giroud et al (2012) could lead to a misinterpretation of findings. Giroud et al (2012) demonstrate in their study of corporate default that linking a significant reduction in leverage to an increase in firm performance can reverse causality.…”

Section: Methodological Issuesmentioning

confidence: 99%

“…The reversed causality problem, as discussed by Barker et al (2001) and Giroud et al (2012) could lead to a misinterpretation of findings. Giroud et al (2012) demonstrate in their study of corporate default that linking a significant reduction in leverage to an increase in firm performance can reverse causality. This is primarily because the anticipation of performance improvements might lead banks to forgive debt, thus decreasing a firm's leverage.…”

Section: Methodological Issuesmentioning

confidence: 99%

“…Zingales (1998) argues that high leverage reduces survival chances by curtailing investments, and Giroud et al (2012) find significant performance improvements after debt reductions. However, Winn (1997) contradicts these findings and does not find any asset productivity growth due to debt reduction during turnaround.…”

Section: Debt Restructuringmentioning

confidence: 99%

“…Winn (1993) enables a systematic approach toward distress cause analysis by defining various types of corporate deterioration and argues that each must be met with distinct turnaround strategies. Asquith et al (1994) and Giroud et al (2012) divide crisis causation into cash flow components by distinguishing between such internal causes as high leverage or weak operating performance, and such external causes as industry decline.…”

Section: Underlying Distress Causesmentioning

confidence: 99%

“…Although the factors determining internal distress causes are defined ex-ante, researchers face endogeneity problems (Giroud et al 2012). While high leverage and underperformance are antecedents to corporate distress, they are often also caused by decline and emerge as a result of turnaround efforts; hence, they cannot be clearly stated as independent when developing a turnaround model.…”

Section: Internal Distress Causesmentioning

confidence: 99%

See 4 more Smart Citations

Corporate distress and turnaround: integrating the literature and directing future research

Schweizer

Nienhaus

2017

Bus Res

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The topic of corporate distress and turnaround has been of interest to organizational change theory for many decades. This article considers existing reviews in discussing the current body of turnaround literature across multiple research fields and structures its work along a holistic framework. The numerous facets of corporate turnaround, resorting to general corporate restructuring research classifications, are clustered in a more detailed manner than those that merely rely on two commonly employed turnaround dimensions: ''retrenchment'' and ''recovery.'' The authors develop an agenda for future research based on this cross-disciplinary literature aggregation by highlighting current gaps and offering potential research questions. The review contributes to the understanding of corporate distress and turnaround by integrating different research streams. Additionally, the work emphasizes the need for further harmonization and operationalization in turnaround success metrics.

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Section: Methodological Issuesmentioning

confidence: 99%

Section: Methodological Issuesmentioning

confidence: 99%

Section: Debt Restructuringmentioning

confidence: 99%

Section: Underlying Distress Causesmentioning

confidence: 99%

Section: Internal Distress Causesmentioning

confidence: 99%

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Corporate distress and turnaround: integrating the literature and directing future research

Schweizer

Nienhaus

2017

Bus Res

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Corporate debt booms, financial constraints, and the investment nexus

Albuquerque

2024

J of Applied Econometrics

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SummaryHow do corporate debt booms affect investment? Using US firm‐level data over 1984Q1–2019Q4, and an instrument for firm‐specific debt booms that exploits systematic differences in firms' exposure to industry‐level debt booms, I find that debt booms cause investment growth to decline over the medium term. This result is driven by the financial constraints channel: Vulnerable firms experience a higher cost of debt in the short run, lower stock returns, and an increase in indicators proxying financial risk. Vulnerable firms also cut their investment spending after a debt boom, irrespective of their growth opportunities. Finally, I find that congestion effects from vulnerable firms on healthy firms are amplified during debt booms, stressing the risk that debt booms in a subset of firms may spill over to the rest of the economy.

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Cog in the wheel: Resource release and the scope of interdependencies in corporate adjustment activities

Keum

2019

Strategic Management Journal

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Research Summary: This study characterizes and tests interdependencies in corporate activities used to adjust resources and implement change. Because each activity contributes only a partial result and depends on others to complete an intended change, constraining one can create a bottleneck that traps multiple other activities. For my empirical analysis, I leverage the staggered adoptions of employment protection laws intended to constrain one specific adjustment to one specific resource: dismissing employees. The constraint, however, not only affects the contraction but also the expansion in labor as well as capital investments, acquisition, divestiture, CEO turnover, and other adjustments, and increases (shortens) the persistence of negative (positive) performance. The expansive interdependencies are critical to understanding firm rigidity and resilience, implementation failures, and the persistence of firm performance.Managerial Summary: This study shows how executing even a seemingly straightforward improvement requires piecing together a series of interdependent corporate strategic activities. As a result, a constraint on just one is sufficient to foil a successful firm response. Using changes in employment laws, I show that a firm's ability to dismiss employees not only affects firing, but also hiring, capital investments, acquisition, divestiture, and CEO turnover, and increases (shortens) the persistence of negative (positive) performance. Underestimating the complex and interdependent nature of these activities can lead to biasfor-action and contribute to implementation failures, such

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Snow and Leverage

Cited by 85 publications

References 22 publications

Corporate distress and turnaround: integrating the literature and directing future research

Corporate distress and turnaround: integrating the literature and directing future research

Corporate debt booms, financial constraints, and the investment nexus

Cog in the wheel: Resource release and the scope of interdependencies in corporate adjustment activities

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