District business closings run below national rate
Firm default and aggregate fluctuations
This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990-2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While ...
Factors affecting efforts to limit payments to AIG counterparties
Testimony before the Committee on Government Oversight and Reform, U.S. House of Representatives.
Business failures in New England
During the 1980s, the New England economy prospered relative to the nation as a whole, with lower unemployment rates, more rapidly rising real estate prices, and lower rates of business failures. As the economic tide turned against New England at the end of the decade, the rate of business failures soared, in absolute terms as well as relative to nationwide statistics. This recent wave of business failures appears to have been far in excess of that attributable to the decline in New England economic activity. Moreoever, it has undesirable implications for the regional economy and can be ...
Preserving firm value through exit: the case of voluntary liquidations
Voluntary liquidations offer an interesting example of efficient and orderly asset reallocation. This study examines why firms liquidate, and what happens to their assets. One important determinant of voluntary liquidation concerns asset performance and marketability: liquidating firms have low asset productivity, low market-to-book ratios, and high liquidity. Another important determinant concerns management having the proper incentives to liquidate: high inside ownership, takeover pressure, and low debt levels. Financial factors thus establish whether a liquidation is profitable, while ...
Did the credit crunch cause a rash of business failures?
Bailouts and financial fragility
How does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the efficient policy response is to use public resources to augment the private consumption of those investors facing losses. The anticipation of such a ?bailout? distorts ex ante incentives, leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility. Prohibiting ...
Financial distress and the role of capital contributions by the owner manager
This paper examines the implications of bankruptcy law for owner managed firms. These firms are typically (i) smaller, (ii) their value is closely tied to the skills of the owner manager, and (iii) the owner manager represents a feasible source of capital contributions if the firm is in financial distress. The terms of such capital infusions, codified as the new value exception (NVE) to the absolute priority rule (APR), has been the source of considerable controversy, both in terms of its existence, and the economic benefit, if any, that it provides. We show that when the owner manager cannot ...