Working Paper: NBER ID: w16497
Authors: Xavier Giroud; Holger M. Mueller; Alex Stomper; Arne Westerkamp
Abstract: 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").
Keywords: debt overhang; operating performance; debt restructuring; ski hotels; unexpected snow
JEL Codes: G32; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected snow (Y70) | leverage (G24) |
| leverage (G24) | return on assets (ROA) (G31) |
| leverage reduction (G32) | overhead costs (L89) |
| leverage reduction (G32) | wages (J31) |
| leverage reduction (G32) | input costs (D24) |
| leverage reduction (G32) | sales (M31) |
| unexpected snow (Y70) | return on assets (ROA) (G31) |