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NBER Working Papers and Publications
|October 2010||Snow and Leverage|
with Xavier Giroud, Holger M. Mueller, Arne Westerkamp: w16497
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 betw...
Published: \Snow and Leverage" (with Holger Mueller, Alex Stomper, and Arne Westerkamp), Review of Financial Studies 25, 680-710, 2012. citation courtesy of