Snow and leverage

Giroud, Xavier and Mueller, Holger M. and Stomper, Alex and Westerkamp, Arne (2012) Snow and leverage. Review of Financial Studies, 25 (3). pp. 680-709. ISSN 0893-9454


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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 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").

Item Type: Article
Additional Information: To see the final version of this paper please visit the publisher's website Access to the published version requires a subscription.
Classification Codes: JEL G32, G34
Divisions: Departments > Finance, Accounting and Statistics > Finance, Banking and Insurance
Version of the Document: Submitted
Variance from Published Version: Major
Depositing User: Dissertation Administrator
Date Deposited: 16 Apr 2012 13:41
Last Modified: 15 Sep 2017 07:20
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