I obtained my PhD in Finance from the Vienna Graduate School of Finance in 2013. My research focuses on theoretical and empirical corporate finance questions that lie in the intersection of corporate finance and asset pricing. It addresses to two interlinked questions: How are a firmís financing and investment decisions influenced by the conditions on financial markets and how, in turn, does a firmís behavior affect its security prices. I have written on the relationship between a firmís investment decisions and its stock option prices, on the effect of agency conflicts, market liquidity, and government policies on a firmís incentive to deleverage, and on the cross section of bankruptcy costs and their importance for the capital structure decision.
Via Asset Sales: Agency Costs, Taxes, and Government Policies"
presented at the AFA 2014
Abstract: Do equityholders of a financially distressed firm have an incentive to buy back debt to achieve a more sustainable leverage ratio and avoid costly bankruptcy? I develop a dynamic structural model incorporating a dynamic game to determine conditions under which a firm would voluntarily do so. It allows me to assess the impact of debt-overhang and asset substitution on the restructuring decision and the holdout problem. I find that as long as the total firm value increases through the debt repurchase, equityholders benefit from it, as well. In a dynamic setting, the debt overhang problem takes the form of too early restructuring. Taxes on cancellation of debt income and government subsidies to debtholders can destroy equityholders' incentives; so does low liquidity in the market for the firm's assets; an asset purchase program fosters them. Finally, via threatening not to tender, debtholders can appropriate a large share of the firm's restructuring gains. However, they cannot stop equityholders from gambling for resurrection, which in turn gives equityholders bargaining power to prevent debtholders from holding out.
Implied Costs of Financial Distress"
with Neal Stoughton and Josef Zechner,
R&R Review of Financial Studies
Abstract: This paper takes a novel approach to estimating bankruptcy costs by inference from market prices of equity and put options using a dynamic structural model of capital structure. This approach avoids the selection bias of looking at firms in or near default and therefore permits theories of ex ante capital structure determination to be tested. We identify significant cross sectional variation in bankruptcy costs across industries and relate these to specific firm characteristics. We find that asset volatility and growth options have significant positive impacts, while tangibility and size have negative impacts. Our bankruptcy cost variable estimate significantly negatively impacts leverage ratios. This negative impact is in addition to that of other firm characteristics such as asset intangibility and asset volatility. The results provide strong support for the tradeoff theory of capital structure.
- "The Cross-Section of Expected Returns and Option Prices"
Abstract: I find a novel explanation for the volatility smile pattern across firms: firms' real investment decisions. First, I show empirically that the cross-section of volatility smiles can be explained by the Fama-French factors. This result is puzzling in that option prices, for which the implied volatility surface is just a metric, are affected by determinants of the expected return of the underlying. Second, I provide a rationale for this finding by developing a theoretical model that links a firm's stock option price to its investment decision. In the model, investment options and operating leverage not only establish a relationship between the Fama-French factors and expected stock returns but also make the volatility of the firm's equity state dependent. Via this connection, the factors are also related to the theoretical option prices. The relationship even holds in a Black-Scholes world, where expected stock returns have no effect on option prices. I find the model's predictions concerning the correlation between the size and book-to-market factor and the volatility smile to fit very well the empirical stylized facts.
- Do Bond Covenants Prevent Asset Substitution - Using a Novel Estimation Approach, with Alexander Schandlbauer.
Abstract: This paper investigates in how far bond covenants are able to mitigate the well-known asset substitution problem. Using the simple intuition that such risk-shifting is most likely to occur in times of financial distress, we examine a comprehensive sample of defaulted companies between 2000 and 2013 and analyze whether those firms have in fact engaged in risk-shifting activities prior to default. To identify the unobservable risk-shifting behavior, we employ a simple structural model of the firm and develop a novel conditional simulated method of moments estimation approach. Our results indicate that companies whose bonds have at least one covenant associated are less likely to engage in risk-shifting compared to companies without any bond-covenants.
- Do Bond Covenants Prevent Asset Substitution - Using a Novel Estimation Approach, with Di Cui and Oyvind Norli.
Abstract: †Theory suggests that traders will be more reluctant to trade on negative private information about an ongoing merger if their trading will cause the merger to be canceled. This paper provides evidence on the existence of such feedback between prices and corporate decisions. Using the existence of an acquirer termination fees as a proxy for the commitment not to cancel the transaction, we show that post announcement acquirer stock prices contain more firm-specific information when such a commitment exists than when it does not exist. This suggest that investors with negative private information are more willing to trade on their information when managers are prevented from using this information to adjust their decisions.