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NEWSLETTER of July 26, 2019


The following content has been added at finexpert:

Studies > Performance



PwC’s first-ever Global Crisis Survey is the most comprehensive repository of corporate crisis data ever assembled. PwC heard from 2,084 senior executives in organisations of all sizes, in 25 industries, and across 43 countries — 1,430 of which had experienced at least one crisis in the past 5 years, for a total of 4,515 crises analysed overall. What they found out is game-changing. By delving deep into the real-world experiences of organisations like yours, they uncovered some surprising findings, many of which turn the basic notion of crisis management – in fact, how we even think of crisis – on its head. >more

Studies > Corporate Finance



Lazard's quarterly review of shareholder activism compiles and analyzes data on key activism trends globally. It shows that campaign activity is in line with elevated multi-year pace, but ~25% lower than record 2018. M&A theses are arising in nearly half of all campaigns and activists are driving significant board and management change. There is also evidence that activism outside the U.S. reaches record highs. >more

Studies > Corporate Finance

Oliver Wyman


The European economies have done very well over the past years. However, there are early signs that this decade of almost continuous growth may be coming to an end. Two-thirds of the participants in our survey believe there will be more companies in crisis mode in the future. In addition, they assume that higher trade barriers and weaker growth in emerging markets may intensify a new economic downturn. On the other hand, crises are not necessarily caused by a general industry decline but instead by changes in technologies or customer needs, which also allow for opportunities if they are addressed with the right business design. >more

Studies > Macro

Bank for International Settlements


It was perhaps too good to be true. In 2017, it was unusual to see a synchronised global expansion at rates above estimates of potential so late in the upswing and, moreover, to project it to continue well into the future. Some deceleration was on the cards. But when it came, in the second half of 2018, it appeared much stronger than expected. It caused tremors in financial markets and anxiety about a possible impending recession. Faced with the prospect of a weaker economy and with an abrupt tightening of financial conditions, the major central banks put the very gradual monetary policy tightening on pause. The recession has not materialised. Still, as always, the question everyone is asking is: "What next?" >more

Research Papers > Alternative Investments


Victoria Ivashina, and Boris Vallee
Using novel data on 1,240 credit agreements for leveraged loans, we investigate sources of contractual complexity and their economic rationale. We show that while restrictions on the use of collateral, issuance of new debt, payments to shareholders, asset sales, and affiliate transactions are widespread, clauses that weaken these negative covenants are as frequent. We propose a simple way to account for contractual weakness. These measures are key to understanding the market-wide price reaction that followed a high-profile court case, where the borrower used such contractual elements to dilute existing creditors. Leveraged buyouts, and especially those backed by sponsors with credit market expertise, have loan agreements with the most weakened negative covenants. At the same time, a larger non-bank funding of a loan, and in particular larger engagement by securitization vehicles, is conducive to weaker contractual terms, which translate into modestly higher issuance spreads. Our findings are consistent with sophisticated borrowers catering to a reaching for yield phenomenon by exploiting contractual complexity. >more

Research Papers > Corporate Finance


Kai Li, and Chi-Yang Tsou
This paper argues leasing is a risk-sharing mechanism: risk-tolerant lessors (capital owners) provide insurance to financially constrained risk-averse lessees (capital borrowers) against systematic capital price fluctuations. We provide strong empirical evidence to support this novel risk premium channel. Among financially constrained stocks, firms with a high leased capital ratio earn average returns 7.35% lower than firms with a low leased capital ratio, which we call it the negative leased capital premium. We develop a general equilibrium model with heterogeneous firms and financial frictions to quantify this channel. Our study also provides a caveat to the recent leasing accounting change of IFRS 16: lease induced liability and financial debt should not be treated equally on firms' balance sheet, as their implications for firms' equity risks and cost of equity are opposite. >more