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Empirical Evidence on Corporate Risk‐Shifting
Author(s) -
Danielova An.,
Sarkar Sudipto,
Hong Gwangheon
Publication year - 2013
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12010
Subject(s) - debt , volatility (finance) , callable bond , business , monetary economics , empirical evidence , earnings , credit risk , systematic risk , corporate debt , default risk , economics , bond , financial economics , actuarial science , finance , philosophy , epistemology
We study empirically whether nonfinancial firms’ behavior is consistent with systematic risk‐shifting. We compare firms’ operating risk before and after a debt issue, under the assumption that if there is any risk‐shifting it is most likely to occur right after a debt issue. We document a significant increase in firms’ operating risk, even after adjusting for industry influences. The risk‐shifting is higher for firms with no subsequent debt issues, and for firms with lower credit ratings. Other determinants are earnings volatility, size of debt issue, and whether the bond is callable.