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Leverage, Competition, and Financial Distress Hazard: Non-Monotonic Effects in the Presence of Agency Costs

Leverage, Competition, and Financial Distress Hazard: Non-Monotonic Effects in the Presence of Agency Costs

Ugur, Mehmet ORCID: 0000-0003-3891-3641, Solomon, Edna and Zeynalov, Ayaz (2020) Leverage, Competition, and Financial Distress Hazard: Non-Monotonic Effects in the Presence of Agency Costs. [Working Paper] (Submitted)

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Abstract

This paper investigates the effects of leverage and product-market competition on financial distress in the presence of agency costs. We demonstrate that leverage and competition have non-monotonic and substitute disciplining effects on managerial slack and financial distress hazard. We take account of potential endogeneity due to the correlation of frailty with the regressors and conduct a wide range of sensitivity checks. Our approach bridges the gap between theory and empirics, offers new avenues for financial distress modelling, and can be applied to other event histories such as corporate defaults or credit downgrades.

Item Type: Working Paper
Additional Information: Under review in Journal of Banking and Finance
Uncontrolled Keywords: Financial distress; competition; leverage; hazard modelling
Subjects: H Social Sciences > HB Economic Theory
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA)
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified: 27 May 2020 16:45
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
Selected for REF2021: None
URI: http://gala.gre.ac.uk/id/eprint/28304

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