The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed
Published: 10/1998, Volume: 53, Issue: 5 | DOI: 10.1111/0022-1082.00062 | Cited by: 827
Gregor Andrade, Steven N. Kaplan
This paper studies thirty‐one highly leveraged transactions (HLTs) that become financially, not economically, distressed. The net effect of the HLT and financial distress (from pretransaction to distress resolution, market‐ or industry‐adjusted) is to increase value slightly. This finding strongly suggests that, overall, the HLTs of the late 1980s created value. We present quantitative and qualitative estimates of the (direct and indirect) costs of financial distress and their determinants. We estimate financial distress costs to be 10 to 20 percent of firm value. For a subset of firms that do not experience an adverse economic shock, financial distress costs are negligible.
Selling Failed Banks
Published: 6/20/2017, Volume: 72, Issue: 4 | DOI: 10.1111/jofi.12512 | Cited by: 142
JOÃO GRANJA, GREGOR MATVOS, AMIT SERU
The average FDIC loss from selling a failed bank is 28% of assets. We document that failed banks are predominantly sold to bidders within the same county, with similar assets business lines, when these bidders are well capitalized. Otherwise, they are acquired by less similar banks located further away. We interpret these facts within a model of auctions with budget constraints, in which poor capitalization of some potential acquirers drives a wedge between their willingness and ability to pay for failed banks. We document that this wedge drives misallocation, and partially explains the FDIC losses from failed bank sales.
Advertising Expensive Mortgages
Published: 9/14/2016, Volume: 71, Issue: 5 | DOI: 10.1111/jofi.12423 | Cited by: 162
UMIT G. GURUN, GREGOR MATVOS, AMIT SERU
Using information on advertising and mortgages originated by subprime lenders, we study whether advertising helped consumers find cheaper mortgages. Lenders that advertise more within a region sell more expensive mortgages, measured as the excess rate of a mortgage after accounting for borrower, contract, and regional characteristics. These effects are stronger for mortgages sold to less sophisticated consumers. We exploit regional variation in mortgage advertising induced by the entry of Craigslist and other tests to demonstrate that these findings are not spurious. Analyzing advertising content reveals that initial/introductory rates are frequently advertised in a salient fashion, where reset rates are not.