NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Snow and Leverage

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

NBER Working Paper No. 16497
Issued in October 2010
NBER Program(s):   CF

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").

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w16497

Published: \Snow and Leverage" (with Holger Mueller, Alex Stomper, and Arne Westerkamp), Review of Financial Studies 25, 680-710, 2012. citation courtesy of

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