Resource title

Snow and leverage

Resource image

image for OpenScout resource :: Snow and leverage

Resource description

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"). (author's abstract)

Resource author

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

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://epub.wu.ac.at/3506/1/Snow_Complete.pdf

Resource license

Adapt according to the license agreement. Always reference the original source and author.