competition and coalition formation of renewable power producers we investigate group formations and strategic behaviors of renewable power producers in electricity markets these producers currently bid into the day ahead market in a conservative fashion because of the real time risk associated with not meeting their bid amount it has been suggested in the literature that producers would bid less conservatively if they can form large groups to take advantages of spatial diversity to reduce the uncertainty in their aggregate output we show that large groups of renewable producers would act strategically to lower the aggregate output because of market power to maximize renewable power production we characterize the trade off between market power and generation uncertainty as a function of the size of the groups we show there is a sweet spot in the sense that there exists groups that are large enough to achieve the uncertainty reduction of the grand coalition but are small enough such that they have no significant market power we consider both independent and correlated forecast errors under a fixed real time penalty we also consider a real time market where both selling and buying of energy are allowed we validate our claims using pjm and nrel data

market price behavior of wholesale electricity products texas abstract applying a regression based approach to a newly developed sample of over 60 000 hourly observations for 01 01 2011 12 30 2017 we answer the question what moves the day ahead market dam prices for energy and ancillary services as and the real time market rtm price for energy in the electric reliability council of texas ercot our answer comprises the following findings that capture the interdependence of ercot s energy and as products 1 the dam energy price increases with the day ahead forecasts of natural gas price system load and as requirements but declines with nuclear and wind generation s forecasts 2 the as prices increase with the dam energy price and the as procurement forecasts but decline with the as offer forecasts and 3 the rtm energy price increases with the dam energy price but diverges from the dam energy price due to forecasting errors related to the dam energy price s fundamental drivers these findings imply that texas can reduce the prices for day ahead energy day ahead as and real time energy via wind generation development and demand side management further texas can improve its electricity trading efficiency by improving ercot s forecast accuracy to narrow the rtm energy price s divergence from the dam energy price

why is bank debt senior a theory of asymmetry and claim priority based on influence costs this theory can explain why bank debt is universally senior consistent with the presence of conflict lawyers and absolute priority violations in financial distress better organized banks would more strongly contest priority in financial distress if they were junior because deterrence can reduce creditors total expenses in a priority contest the ex post stronger lobbyist litigant should be senior ex ante for equivalent reasons the theory can advise when public debt should be senior to trade credit and or implicit contracts and can even suggest one rationale for the absolute priority rule apr this article further shows that chapter hi creditor reimbursement procedures can lower overall costs article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

directional preferences information processing and investors forecasts of earnings this paper investigates the effects of preferences on judgments in an investing context where investors should be motivated to interpret information objectively yet have clear preferences with respect to what the information they are evaluating conveys i e a gain or a loss on their investment the results of the experiment are consistent with theories of motivated reasoning that predict when and in what manner directional preferences affect how information is processed specifically investors are motivated to agree unthinkingly with information that suggests they might make money on their investment but disagree with information that suggests they might lose money in disagreeing long investors expect earnings to be relatively high and short investors expect earnings to be relatively low these results have implications not only for understanding investor behavior but also for understanding the biased behavior of market participants who face conflicts of interest such as analysts managers and auditors by providing direct evidence that such behavior can arise for purely psychological reasons

fire sales and the financial accelerator abstract during financial turmoil increases in risk lead to higher default foreclosure and fire sales this paper introduces a costly liquidation process for foreclosed collateral and pro cyclical recovery rates in a dynamic stochastic general equilibrium model of the financial accelerator links between endogenous recovery rates risk premia and default risk generate a liquidity spiral magnifying financial accelerator effects we illustrate how collateral liquidation and monetary policy alter the real impact of financial shocks operating through macro financial linkages and the way a government subsidy on collateral liquidity and required liquidity buffers can help dampen the liquidity spiral by shoring up recovery rates

effect of wind generation on ercot nodal prices abstract in this paper we utilize nodal price data at each thermal generation facility within the ercot footprint between 2014 and 2016 to revisit an empirical question of great interest to various parties how does wind integration affect the wholesale energy price we find that for every additional 1000 mw of wind generation in a real time 15 minute settlement interval nodal prices at non wind resources would be suppressed by 1 45 mwh to 4 45 mwh with considerable heterogeneity across time and space

can innovative reforms and practices efficiently resolve financial distress abstract the last few years have seen a phenomenal upsurge in the number of corporate bankruptcies the vulnerabilities that were lying dormant within contemporary bankruptcy regimes suddenly became apparent causing concerns within the international corporate community consequently researchers practitioners and policy makers from all over the world became actively engaged in emphasizing the importance of efficient bankruptcy reforms to promote a rescue culture the primary objective of an insolvency framework should be to provide quick transparent and cost effective solutions for resolving financial distress and promoting a synergetic environment conducive to the proliferation of healthy debt repayment practices increased trust factors between creditors and debtors and a better survival rate for viable businesses in this paper we present a qualitative review of various insolvency reforms introduced in several countries between 2005 and 2013 for efficiently resolving financial distress we delve into a discussion of the prevalent practice of resolving distress through the courts formal procedure or out of the courts private workout settlements the supporting literature and the limitations involved in the process overall our goal was to summarize and synthesize empirical data and highlight the strengths and weaknesses of the proposed insolvency reforms to provide a better understanding of common ways of resolving financial distress the data shows evidence that several countries have improved their bankruptcy ranking doing business reports by empowering creditors by expanding their rights under bankruptcy speeding up court procedures promoting out of court procedures and regulating insolvency practitioners lastly we adopt a normative approach by proposing a list of legal changes that should drive legislators actions in order to provide sustainable ways for resolving distress e g transparency early filling extension of floating charges electronic management of bankruptcy files etc

do auctions induce a winner s curse new evidence from the corporate takeover market abstract we contrast the winner s curse hypothesis and the competitive market hypothesis as potential explanations for the observed returns to bidders in corporate takeovers the winner s curse hypothesis posits suboptimal behavior in which winning bidders fail to adapt their strategies to the level of competition and the amount of uncertainty in the takeover environment and predicts that bidder returns are inversely related to the level of competition in a given deal and to the uncertainty in the value of the target our measure of takeover competition comes from a unique data set on the auction process that occurs prior to the announcement of a takeover in our empirical estimation we control for the endogeneity between bidder returns and the level of competition in takeover deals controlling for endogeneity we find that the returns to bidders are not significantly related to takeover competition we also find that uncertainty in the value of the target does not reduce bidder returns related analysis indicates that prestigious investment banks do not promote overbidding analysis of post takeover operating performance also fails to find any negative effects of takeover competition as a whole the results indicate that the breakeven returns to bidders in corporate takeovers stem not from the winner s curse but from the competitive market for targets that occurs predominantly prior to the public announcement of bids

asset redeployability liquidation value and endogenous capital structure heterogeneity firms with lower leverage are not only less likely to experience financial distress but are also better positioned to acquire assets from other distressed firms with endogenous asset sales and values each firm s debt choice then depends on the choices of its industry peers with indivisible assets otherwise identical firms may adopt different debt policies with some choosing highly levered operations to take advantage of ongoing debt benefits and others choosing more conservative policies to wait for acquisition opportunities our key empirical implication is that the acquisition channel can induce firms to reduce debt when assets become more redeployable

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

a game theoretic analysis of wind generation variability on electricity markets wind generation variability in an energy only market such australian national electricity market nem can create significant revenue uncertainties for incumbent generators and substantially increase price risks faced by retailers this paper presents a cournot game model to formally analyze how high volatility of wind generation in a concentrated energy only market can raise the peak shoulder period of typically low wind generation prices to offset the foregone revenue during off peak periods of high wind generation a monte carlo simulation around a cournot game is formulated as an inter temporal nonlinear optimization problem to assess these issues the model is implemented for the south australian zone of the australian nem that has experienced high growth in wind generation in recent years the model results support some of the observed spot pricing behavior in the region in recent years these findings have significant ramifications for the efficacy of the energy only market in scenarios with high penetration of intermittent generation

on the market impact of wind energy forecasts this paper presents an analysis of how day ahead electricity spot prices are affected by day ahead wind power forecasts demonstration of this relationship is given as a test case for the western danish price area of the nord pool s elspot market impact on the average price behaviour is investigated as well as that on the distributional properties of the price by using a non parametric regression model to assess the effects of wind power forecasts on the average behaviour the non linearities and time variations in the relationship are captured well and the effects are shown to be quite substantial furthermore by evaluating the distributional properties of the spot prices under different scenarios the impact of the wind power forecasts on the price distribution is proved to be considerable the conditional price distribution is moreover shown to be non gaussian this implies that forecasting models for electricity spot prices for which parameters are estimated by a least squares techniques will not have gaussian residuals hence the widespread assumption of gaussian residuals from electricity spot price models is shown to be inadequate for these model types the revealed effects are likely to be observable and qualitatively similar in other day ahead electricity markets significantly penetrated by wind power

impacts of variable renewable energy on wholesale markets and generating assets in the united states a review of expectations and evidence abstract we synthesize available literature data and analysis on the degree to which growth in variable renewable energy vre has impacted or might in the future impact bulk power system assets pricing and costs in the united states most studies of future scenarios indicate that vre reduces wholesale energy prices and capacity factors of thermal generators traditional baseload generators are more exposed to these changing market conditions than low capital cost and more flexible intermediate and peak load generators from analysis of historical data we find that vre is already influencing the bulk power market through changes in temporal and geographic patterns areas with higher levels of vre the most significant observed impacts have concentrated in areas with significant vre and or nuclear generation along with limited transmission with negative pricing also often occurring during periods with lower system wide load so far however vre has had a relatively modest impact on historical average annual wholesale prices across entire market regions at least in comparison to other drivers the reduction of natural gas prices is the primary contributor to the decline in wholesale prices since 2008 similarly vre impacts on thermal plant retirements have been limited and there is little relationship between the location of recent retirements and vre penetration levels although impacts on wholesale prices have been modest so far impacts of vre on the electricity market will be more significant under higher vre penetrations

an experimental study of the investment implications of bankruptcy laws in bankruptcy laws proportionality is the universal norm when allocating the liquidation value of a bankrupt firm among creditors the theoretical literature on bankruptcy proposes two prominent alternatives to proportionality the equal awards and the equal losses principles we use an experiment to analyze and compare actual creditor behavior under these three principles more specifically we test the following hypotheses replacing proportionality with equal losses increases total investment while replacing proportionality with equal awards decreases total investment under all three principles individual investment choices decrease in response to an increase in the probability of bankruptcy or an increase in risk aversion total investment difference between proportionality and either of the other two principles is independent of the probability of bankruptcy as long as both induce an interior equilibrium the results of the nonparametric tests and random effects tobit regression analyses we conduct on our experimental data offer support for all hypotheses

liquidation costs and capital structure abstract we investigate the relation between liquidation costs of assets and composition of capital structure for firms that reorganized under chapter 11 of the bankruptcy code firms with high liquidation costs emerge from chapter 11 with relatively low debt ratios the debt of these firms is more likely to be public and unsecured and to have less restrictive covenant terms these firms are also more likely to raise new equity capital assets with high liquidation costs thus lead firms to choose capital structures that make financial distress less likely

empirical analysis of the merit order effect and the missing money problem in power markets with high res shares an on going debate in the energy economics and power market community raises the question if energy only power markets are increasingly failing due to growing feed in shares from subsidized renewable energy sources res the argument being essentially that the merit order effect of res production depresses day ahead spot market prices which in turn creates a situation where power plant owners cannot recover investment costs missing money problem we argue in short that energy only power markets are not failing in principle but are rather facing several market distortions that hinder proper market functioning namely 1 the gap between the electricity volume actually traded at day ahead spot markets versus the overall electricity consumption and 2 the regulatory assumption that variable res generation i e wind and photovoltaic pv truly has zero marginal operation and grid integration costs in this paper we show that both effects over amplify the well known merit order effect of res power feed in and indirectly also the missing money problem beyond a level that is explainable by underlying physical realities we empirically analyze the impacts of wind and pv power feed in on the day ahead market for the epex german austrian market zone a region that is already today experiencing significant feed in tariff fit subsidized res power feed in ca 20 fit share our analysis shows that if necessary regulatory adaptations are taken i e increasing the spot market s share of overall load demand and using the true marginal costs of res units in the merit order energy based power markets remain functional despite high res power feed in

discussion of the joint effect of management s prior forecast accuracy and the form of its financial forecasts on investor judgment hirst koonce and miller henceforth hkm investigate how the prior accuracy and precision of management s earnings forecasts influence investors judgments hkm hypothesize that revisions in investors earnings forecasts and their confidence in those forecasts will be positively related to management s prior forecasting accuracy more surprisingly they hypothesize that the precision of management s forecast will not influence investors earnings forecast but will interact with prior forecasting accuracy to influence investors confidence levels specifically investors who receive a point forecast rather than a range forecast from management are predicted to be more confident in their own earnings forecast but only when management s prior forecast accuracy is high hkm do not expect precision to affect investors confidence when management s prior forecast accuracy is low their results are consistent with these hypotheses this discussion focuses on three issues the importance of behavioral financial accounting studies such as this one some of the auditors experimental choices and the implications of this study

comprehensive value assessment of wind power by layer great emphasis has been placed on rational value assessment of wind power in system in recent times because there are different properties in various output levels of wind power there should also be different values this paper proposes a novel method for value assessment of wind power to get a more comprehensive and accurate evaluation wind power outputs are divided horizontally based on the wind layer model then comprehensive studies of cost and benefit are conducted layer by layer furthermore the detailed characteristics in layers storage benefit and value allocation are analyzed after that the sensitivities about the chosen system parameters region size and demand side participation are discussed at length the effectiveness and rationality of the model are proved by the case study the model assesses the value of wind power more precisely and profoundly which would provide significant guidance in the setting of price policy for wind power and market supervision

electricity market price and nuclear power plant shutdown evidence from california abstract japan s fukushima nuclear disaster triggered by the march 11 2011 earthquake has led to calls for shutting down existing nuclear plants to maintain resource adequacy for a grid s reliable operation one option is to expand conventional generation whose marginal unit is typically fueled by natural gas two timely and relevant questions thus arise for a deregulated wholesale electricity market 1 what is the likely price increase due to a nuclear plant shutdown and 2 what can be done to mitigate the price increase to answer these questions we perform a regression analysis of a large sample of hourly real time electricity market price data from the california independent system operator caiso for the 33 month sample period of april 2010 december 2012 our analysis indicates that the 2013 shutdown of the state s san onofre plant raised the caiso real time hourly market prices by 6 mwh to 9 mwh and that the price increases could have been offset by a combination of demand reduction increasing solar generation and increasing wind generation

a retrospective analysis of benefits and impacts of u s renewable portfolio standards abstract as states consider revising or developing renewable portfolio standards rps they are evaluating policy costs benefits and other impacts we present the first u s national level assessment of state rps program benefits and impacts focusing on new renewable electricity resources used to meet rps compliance obligations in 2013 in our central case scenario reductions in life cycle greenhouse gas emissions from displaced fossil fuel generated electricity resulted in 2 2 billion of global benefits health and environmental benefits from reductions in criteria air pollutants sulfur dioxide nitrogen oxides and particulate matter 2 5 were even greater estimated at 5 2 billion in the central case further benefits accrued in the form of reductions in water withdrawals and consumption for power generation finally although best considered resource transfers rather than net societal benefits new renewable electricity generation used for rps compliance in 2013 also supported nearly 200 000 u s based gross jobs and reduced wholesale electricity prices and natural gas prices saving consumers a combined 1 3 4 9 billion in total the estimated benefits and impacts well exceed previous estimates of rps compliance costs

the determinants of recovery rates in the us corporate bond market we examine recovery rates of defaulted bonds in the us corporate bond market based on a complete set of traded prices and volumes a study of the trading microstructure around various types of default events is provided we document temporary price pressure with high trading volumes on the default day and the following 30 days and low trading activity thereafter based on this analysis we determine market based recovery rates and quantify various liquidity measures we study the relation between the recovery rates and these measures considering additionally a comprehensive set of bond characteristics firm fundamentals and macroeconomic variables

asset sale debt restructuring and liquidation this paper considers a dynamic model in which shareholders of a firm in distress have a choice of whether the firm proceeds to debt restructuring or direct liquidation at an arbitrary time in the model we show the following results fewer asset sales lower financing debt renegotiation and running costs a lower premium to the debt holders a lower cash flow volatility and a higher initial coupon increase the shareholders incentive to choose debt restructuring to avoid full liquidation in the debt renegotiation process the shareholders arrange the coupon reduction and use equity financing to retire a part of the debt value to the debt holders the timing of debt restructuring always coincides with that of liquidation without debt renegotiation most notably the shareholders do not prefer asset sale in debt restructuring even if they face high financing costs the possibility of debt renegotiation in the future increases the initial leverage ratio in the optimal capital structure

capital structure under costly enforcement we consider financial structure and repayment behavior in a setting where cash flows are private information to the entrepreneur and the cost of enforcing repayment differs across security holders if enforcement costs are lower for shareholders than for creditors a mixed capital structure with debt and equity can obtain in equilibrium under a mixed capital structure creditors intervene in low cash flow states while shareholders intervene in high cash flow states moreover strategic defaults costly bankruptcy shareholder intervention and violation of absolute priority occur with positive probability on the equilibrium path several of the predictions from our framework are consistent with evidence not readily explainable by existing theories

recovery rates uncertainty certainly matters abstract previous studies identify default rate as the main systematic determinant of bond recovery rates we revisit this paradigm by investigating the impact of another factor economic uncertainty based on a wide sample of american default issues and relying on beta regression models well suited for the bounded heteroskedastic and skewed sample of recovery rates we analyze the determinants of recovery rate distributions we find economic uncertainty to be of paramount importance as it proves to be the most important systematic determinant of recovery rate distributions significant for both their mean and dispersion by contrast default rate remains a key determinant of the dispersion of these distributions but not for their means considering this evidence is critical to the sound implementation of stochastic recovery rate models used by financial institutions for the computation of regulatory capital

supply chain contract design under financial constraints and bankruptcy costs we study contract design and coordination of a supply chain with one supplier and one retailer both of which are capital constrained and in need of short term financing for their operations competitively priced bank loans are available and the failure of loan repayment leads to bankruptcy where default costs may include variable proportional to the firm s sales and fixed costs without default costs it is known that simple contracts e g revenue sharing buyback and quantity discount can coordinate and allocate profits arbitrarily in the chain with only variable default costs buyback contracts remain coordinating and equivalent to revenue sharing contracts but are pareto dominated by revenue sharing contracts when fixed default costs are present thus for general bankruptcy costs contracts without buyback terms are of most interest quantity discount contracts fail to coordinate the supply chain since a necessary condition for coordination is to proportionally reallocate debt obligations w

merit order effects of renewable energy and price divergence in california s day ahead and real time electricity markets abstract we answer two policy questions 1 what are the estimated merit order effects of renewable energy in the california independent system operator s caiso s day ahead market dam and real time market rtm and 2 what causes the hourly dam and rtm prices to systematically diverge the first question is timely and relevant because if the merit order effect estimates are small california s renewable energy development is of limited help in cutting electricity consumers bills but also has a lesser adverse impact on the state s investment incentive for natural gas fired generation the second question is related to the efficient market hypothesis under which the hourly rtm and dam prices tend to converge using a sample of about 21 000 hourly observations of caiso market prices and their fundamental drivers during 12 12 2012 04 30 2015 we document statistically significant estimates p value 0 01 for the dam and rtm merit order effects this finding lends support to california s adopted procurement process to provide sufficient investment incentives for natural gas fired generation we document that the rtm dam price divergence partly depends on the casio s day ahead forecast errors for system loads and renewable energy this finding suggests that improving the performance of the caiso s day ahead forecasts can enhance trading efficiency in california s dam and rtm electricity markets

environmental disclosures regulatory costs and changes in firm value abstract union carbide s chemical leak in bhopal india during december 1984 resulted in approximately 4 000 deaths and 200 000 injuries this study examines the market reaction of chemical firms other than union carbide to this catastrophe evidence indicates that a significant negative intra industry reaction occurred however firms with more extensive environmental disclosures in their financial report prior to the chemical leak experienced a less negative reaction than firms with less extensive disclosures this result suggests that investors interpreted such disclosures as a positive sign of the firm managing its exposure to future regulatory costs

optimal priority structure capital structure and investment we study the interaction between financing and investment decisions in a dynamic model where the firm has multiple debt issues and equityholders choose the timing of investment jointly optimal capital and priority structures can virtually eliminate investment distortions because debt priority serves as a dynamically optimal contract examining the relative efficiency of priority rules observed in practice we develop several predictions about how firms adjust their priority structure in response to changes in leverage credit conditions and firm fundamentals notably financially unconstrained firms with few growth opportunities prefer senior debt while financially constrained firms with or without growth opportunities prefer junior debt moreover lower rated firms are predicted to spread priority across debt classes finally our analysis has a number of important implications for empirical capital structure research including the relations between market leverage book leverage and credit spreads and tobin s q the influence of firm fundamentals on the agency cost of debt and the conservative debt policy puzzle the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

zero leverage and the value in waiting to have debt abstract this paper documents that the real option to have debt motivates some firms to remain debt free even when standard trade off theory predicts that these firms should have leverage the real option has a first order effect similar to the effect of bankruptcy costs in addressing the zero leverage puzzle the observation that many firms seemingly forgo sizable debt benefits by remaining debt free the debt free firms value includes the option whose value is derived from future debt benefits and hedging bankruptcy costs this paper proposes an optimal timing model for having debt and finds support for the model s predictions through calibrations and simulations

on the design of contingent capital with a market trigger contingent capital cc which intends to internalize the costs of too big to fail in the capital structure of large banks has been under intense debate by policy makers and academics we show that cc with a market trigger in which direct stake holders are unable to choose optimal conversion policies does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante the no value transfer restriction precludes penalizing bank managers for taking excessive risk multiplicity or absence of an equilibrium introduces the potential for price uncertainty market manipulation inecient capital allocation and frequent conversion errors these results point to the need to explore alternative designs of a prudential capital structure for banks jel classication

counterfactual comparisons of investment options for wind power and agricultural production in the united states lessons from northern ohio abstract we analyze potential efficiency gains in wind power projects by comparing counterfactual investment decisions in two different scenarios under a real options framework the first scenario is a standard wind power investment where the investor rents the land from local farms in the second scenario the wind power investor buys the land and commercializes both electricity and crop production thus reducing the revenue risk through the diversification both scenarios have a waiting option with the wholesale prices leading the installation decision we model the electricity price as a mean reverting process with jumps and with different jumping probabilities for the different seasons of the year corn prices follow a mean reverting process the waiting flexibility was modeled as a bundle of european options the results indicate that the waiting option is exercised in 100 of our simulations in both scenarios suggesting the still important role of government policies to stimulate wind power more importantly in more than 90 of the simulations the second scenario brought value to the investment furthermore net present values are more sensitive to reductions in capital costs than electricity prices these results can form the basis for more effective policies for the wind power sector

what s your identification strategy innovation in corporate finance research we study the diffusion of techniques designed to identify causal relationships in corporate finance research we estimate that the diffusion started in the mid 1990s lagged 20 years compared to economics and is now used in the majority of corporate finance articles consistent with recent theories of technology diffusion the adoption varies across researchers based on individuals expected net benefits of adoption younger scholars holders of phds in economics and those working at top institutions adopt faster adoption is accelerated through networks of colleagues and alumni and is also facilitated by straddlers who cross over from economics to finance our findings highlight new forces that explain the diffusion of innovation and shape the norms of academic research this paper was accepted by gustavo manso finance

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

wind power and electricity prices at the pjm market increased deployment of wind power generation is changing the landscape of power supply around the world when integrated with electricity markets wind power is also widely known to influence the prices cleared at the market this paper examines the effect of wind power generation on the day ahead market prices in the pjm electricity market using robust econometric models and statistical inference results show that the quantified expected benefits to wholesale market participants may be substantial despite the relatively low wind power penetration levels still observed within the pjm jurisdiction relative to other markets the quantified unitary benefits outweigh by a great margin the renewable energy credits given to qualifying wind farms across the market when benefits outweigh the costs incurred to generate them welfare is accrued to this end benefit allocation mechanisms are proposed which may contribute to the continued development of wind power on the roadmap to a cleaner power industry of the future

corporate risk management integrating liquidity hedging and operating policies we analyze the value created by a dynamic integrated risk management strategy involving liquidity management derivatives hedging and operating flexibility in the presence of several frictions we show that liquidity serves a critical and distinct role in risk management justifying high levels of cash we find that the marginal value associated with derivatives hedging is likely to be low though we explain why some empirical studies find a higher value we explore the complex interactions between operating flexibility and financial risk management finding that substitution effects are nonmonotonic and are affected by operating leverage the nature of operating flexibility and the effectiveness of the hedging instrument this paper was accepted by jerome detemple finance

texas s operating reserve demand curve s generation investment incentive abstract faced with reserve margin projections well below the adopted target of 13 75 of the system peak forecast the public utility commission of texas on 01 17 2019 ordered the state s grid operator the electric reliability council of texas to right shift the operating reserve demand curve ordc to increase generators revenue from energy sales in ercot s real time market rtm using a large sample of 15 min data for the backcast period of 01 01 2015 through 12 31 2018 we calculate the ordc shift s impact on rtm prices and investment incentives for natural gas fired generation ngfg had the ordc shift been in effect in the backcast period the resulting rtm price increases in 2018 could suffice to justify ngfg investment though not in the prior years of 2015 2016 and 2017 while the actual ordc shift occurred on 03 01 2019 had a large impact on rtm prices in the ensuing six month period of march august 2019 texas s planned renewable generation is expected to erode ngfg s operating profit thus diminishing the ordc s investment incentive over time hence texas s energy only market design will likely need further refinements to solve the missing money problem of inadequate ngfg investment incentive

the administrative costs of corporate bankruptcy a note in this paper we present evidence on the direct administrative costs of corporate bankruptcy the investigation is directed toward providing evidence that may be helpful in answering questions about the role of bankruptcy costs as a determinant of corporate capital structures the importance of bankruptcy costs as a determinant of corporate financing policy has been extensively debated in the finance literature the origins of the debate can be traced to modigliani and miller 8 and robichek and myers 9 under the assumption that debt is default free and interest payments are taxdeductible modigliani and miller demonstrated that firms will maximize their market values by maximizing their use of debt financing robichek and myers demonstrated that this conclusion also holds when debt is not default free but bankruptcy is costless to explain observed corporate debt to total value ratios which typically fall in the range of 20 percent to 30 percent robichek and myers 9 and baxter 1 appealed to the existence of bankruptcy costs as a possible counterweight to the tax deductibility of interest payments subsequently kraus and litzenberger 5 scott 10 lee and barker 6 kim 4 and turnbull 13 developed formal models in which firms maximize value by increasing their use of debt financing to the point where the marginal present value of future tax shields equals the marginal present value of future bankruptcy costs the bankruptcy cost literature has identified three types of costs as potentially relevant to the determination of a firm s optimal mix of debt and equity financing 1 the direct administrative expenses paid to various third parties involved in the bankruptcy proceedings 2 the shortfall in realized value when assets are sold in liquidation or the indirect costs of reorganization and 3 the loss of tax credits which the firm would have received had it not gone bankrupt contrarily haugen and senbet 3 and to a lesser extent miller 7 and warner 14 have argued that the only bankruptcy costs relevant to the determination of a firm s optimal capital structure are the direct administrative costs of bankruptcy the crux of their argument is that the shortfall costs of liquidation the indirect costs of reorganization and the loss of tax credits which occurs upon dissolution of the firm are in fact relevant to the liquidation investment decisions of the firm these costs would be borne by the security holders of a failing firm

disclosure of contingent environmental liabilities some unintended consequences this research presents evidence that anchoring can influence the judgments and decisions of financial statement users presented with alternative disclosures of contingent environmental liabilities i e the minimum maximum best estimate or range we conjecture that users reliance anchoring on the disclosed parameter to estimate other undisclosed parameters of the distribution of possible losses results in tight distributions despite substantial uncertainty inherent in the estimates tversky and kahneman 1982 therefore different disclosures of the

an empirical analysis of prepackaged bankruptcies abstract we provide comprehensive data on the attributes and outcomes of the restructuring process for a sample of 49 financially distressed firms that restructured by means a prepackaged bankruptcy our findings complement previous research on out of court restructurings and traditional chapter 11 filings by most measures including the time spent in reorganization the direct fees as a percent of pre distress assets the recovery rates by creditors and the incidence of violation of absolute priority of claimholders we find that prepacks lie between out of court restructurings and traditional chapter 11 bankruptcies

resolution of financial distress under chapter 11 abstract we develop a contingent claims model for a firm in financial distress with a formal account for renegotiations under the u s bankruptcy procedure known as chapter 11 shareholders and two classes of creditors senior and junior alternatively propose a reorganization plan subject to a vote the bankruptcy judge can intervene in any renegotiation round to impose a plan the multiple stage bargaining process is solved in a non cooperative game theory setting the calibrated model yields the liquidation rate the duration of chapter 11 and the frequency of deviations from the absolute priority rule which are consistent with empirical evidence

credit default swaps and the empty creditor problem the empty creditor problem arises when a debtholder has obtained insurance against default but otherwise retains control rights in and outside bankruptcy we analyze this problem from an ex ante and ex post perspective in a formal model of debt with limited commitment by comparing contracting outcomes with and without insurance through credit default swaps cds we show that cds and the empty creditors they give rise to have important ex ante commitment benefits by strengthening creditors bargaining power they raise the debtor s pledgeable income and help reduce the incidence of strategic default however we also show that lenders will over insure in equilibrium giving rise to an inefficiently high incidence of costly bankruptcy we discuss a number of remedies that have been proposed to overcome the inefficiency resulting from excess insurance jel g30 g32 g33 one of the most significant changes in the debtor creditor relationship in the

on the investment implications of bankruptcy laws axiomatic analysis of bankruptcy problems reveals three major principles i proportionality pro ii equal awards ea and iii equal losses el however most real life bankruptcy procedures implement only the proportionality principle we construct a noncooperative investment game to explore whether the explanation lies in the alternative implications of these principles on investment behavior our results are as follows i el always induces higher total investment than pro which in turn induces higher total investment than ea ii pro always induces higher egalitarian social welfare than both ea and el in interior equilibria iii pro induces higher utilitarian social welfare than el in interior equilibria but its relation to ea depends on the parameter values however a numerical analysis shows that on a large part of the parameter space pro induces higher utilitarian social welfare than ea

conflicts of interest and market illiquidity in bankruptcy auctions theory and tests i develop and estimate a model of cash auction bankruptcy using data on 205 swedish firms the results challenge arguments that cash auctions as compared to reorganizations are immune to conflicts of interest between claimholders but lead to inefficient liquidations i show that a sale of the assets back to incumbent management is a common bankruptcy outcome sale backs are more likely when they favor the bank at the expense of other creditors on the other hand inefficient liquidations are frequently avoided through sale backs when markets are illiquid that is when industry indebtedness is high and the firm has few nonspecific assets the problem of designing an efficient bankruptcy law has received considerable attention in the last decade much of the debate has centered around the optimality of two different stylized bankruptcy procedures cash auctions such as the u s chapter 7 code and structured bargaining represented by the u s chapter 11 reorganization code recently several european countries including france germany and great britain have changed their bankruptcy regulation by introducing reorganization procedures similar to chapter 11 at the same time the chapter 11 code has been criticized by academics including baird 1986 emphasizing that the bargaining procedure frequently results in long and wasteful negotiations these critics argue that chapter 11 should instead be replaced with a mandatory auction procedure other researchers such as aghion hart and moore 1992 and shleifer and vishny 1992 have pointed out that a cash auction is likely to suffer from considerable inefficiencies arising from transaction costs and market illiquidity the nature and costs of the chapter 11 procedure are

bankruptcy law and bank financing exploiting the timing of the 2005 2006 italian bankruptcy law reforms we disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firm investment a 2005 reform introduces reorganization procedures facilitating loan renegotiation the 2006 reform subsequently strengthens creditor rights in liquidation the first reform increases interest rates and reduces investment the second reform reduces interest rates and spurs investment our results highlight the importance of identifying the distinct effects of liquidation and reorganization as these procedures differently address the tension in bankruptcy law between the continuation of viable businesses and the preservation of repayment incentives

the costs of bankruptcy chapter 7 liquidation versus chapter 11 reorganization our paper explores a comprehensive sample of small and large corporate bankruptcies in arizona and new york from 1995 to 2001 bankruptcy costs are very heterogeneous and sensitive to the measurement method used we find that chapter 7 liquidations appear to be no faster or cheaper in terms of direct expense than chapter 11 reorganizations however chapter 11 seems to preserve assets better thereby allowing creditors to recover relatively more our paper also provides a large number of further empirical regularities our paper analyzes the largest sample of corporate bankruptcies to date we research approximately 300 cases from the arizona and new york federal bankruptcy courts from 1995 to 2001 these cases consist of 1 both publicly traded and privately held corporations and 2 both chapter 7 liquidations and chapter 11 reorganizations this sample is practically the entire population of unique corporate bankruptcies in these courts our paper s primary objective is to measure how the two available bankruptcy procedures differ especially but not only in terms of cost we explore four variables namely the change in the estate s value during bankruptcy a measure of indirect costs the time spent in bankruptcy another and more common measure of indirect costs the expenses submitted to and approved by the bankruptcy court a measure of direct costs and the recovery rates for creditors and apr violations our most important findings are that chapter 7 liquidations are not cheaper than chapter 11 reorganizations particularly after we control for endogenous self selection of firms into bankruptcy procedure bankruptcy professionals attorneys accountants trustees regularly end up with most of the post bankruptcy firm s value in chapter 7 arturo bris is at imd yale school of management and ecgi ivo welch is at brown uni

large scale wind power integration and wholesale electricity trading benefits estimation via an ex post approach abstract the integration of large scale wind power has brought about a series of challenges to the power industry but at the same time a number of benefits are being realized among those the ability of wind power to cause a decline in the electricity market prices has been recognized in quantifying this effect some models used in recent years are based on simulations of the market supply side and the price clearing process the accuracy of the estimates depend on the quality of the input data the veracity of the adopted scenarios and the rigorousness of the solution technique in this work a series of econometric techniques based on actual ex post wind power and electricity price data are implemented for the estimation of the impact of region wide wind power integration on the local electricity market clearing prices and the trading savings that stem from this effect the model is applied to the case of spain where the estimated savings are compared against actual credit and bonus expenses to ratepayers the implications and extent of these results for current and future renewable energy policy making are discussed