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    Rights statement: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Kevin Aretz, Shantanu Banerjee, Oksana Pryshchepa, In the Path of the Storm: Does Distress Risk Cause Industrial Firms to Risk-Shift?, Review of Finance, Volume 23, Issue 6, October 2019, Pages 1115–1154, https://doi.org/10.1093/rof/rfy028 is available online at: https://academic.oup.com/rof/article/23/6/1115/5077242

    Accepted author manuscript, 2.48 MB, PDF document

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In the Path of the Storm: Does Distress Risk Cause Industrial Firms to Risk-Shift?

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In the Path of the Storm : Does Distress Risk Cause Industrial Firms to Risk-Shift? / Aretz, Kevin; Banerjee, Shantanu; Pryshchepa, Oksana.

In: Review of Finance, Vol. 23, No. 6, 31.10.2019, p. 1115-1154.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Aretz K, Banerjee S, Pryshchepa O. In the Path of the Storm: Does Distress Risk Cause Industrial Firms to Risk-Shift? Review of Finance. 2019 Oct 31;23(6):1115-1154. Epub 2018 Aug 21. doi: 10.1093/rof/rfy028

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Bibtex

@article{02e6c8a0b3a743838636e0e73b16b08d,
title = "In the Path of the Storm: Does Distress Risk Cause Industrial Firms to Risk-Shift?",
abstract = "We study whether industrial firms risk-shift in response to distress risk increases induced through hurricane strikes. Using new proxies capturing deliberate managerial decisions about the risk of a firm{\textquoteright}s operating segment portfolio, differences tests suggest that hurricane strikes prompt moderately, but not highly, distressed firms to skew their asset mixes towards riskier segments by shutting down low-risk, high-average-Q segments. In turn, the moderately distressed firms observe abnormally high failure rates after a hurricane strike. Employing covenant violation data, we offer further evidence that creditor control prevents highly distressed firms from raising their risk. Our conclusions extend those of other studies by suggesting that moderate distress risk levels can lead the managers of industrial firms to not only engage in risk-taking, but, in fact, in risk-shifting.",
keywords = "Agency conflicts, risk-shifting, distress risk, segment data, hurricane strikes",
author = "Kevin Aretz and Shantanu Banerjee and Oksana Pryshchepa",
note = "This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Kevin Aretz, Shantanu Banerjee, Oksana Pryshchepa, In the Path of the Storm: Does Distress Risk Cause Industrial Firms to Risk-Shift?, Review of Finance, Volume 23, Issue 6, October 2019, Pages 1115–1154, https://doi.org/10.1093/rof/rfy028 is available online at: https://academic.oup.com/rof/article/23/6/1115/5077242",
year = "2019",
month = oct,
day = "31",
doi = "10.1093/rof/rfy028",
language = "English",
volume = "23",
pages = "1115--1154",
journal = "Review of Finance",
issn = "1572-3097",
publisher = "Oxford University Press",
number = "6",

}

RIS

TY - JOUR

T1 - In the Path of the Storm

T2 - Does Distress Risk Cause Industrial Firms to Risk-Shift?

AU - Aretz, Kevin

AU - Banerjee, Shantanu

AU - Pryshchepa, Oksana

N1 - This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Finance following peer review. The definitive publisher-authenticated version Kevin Aretz, Shantanu Banerjee, Oksana Pryshchepa, In the Path of the Storm: Does Distress Risk Cause Industrial Firms to Risk-Shift?, Review of Finance, Volume 23, Issue 6, October 2019, Pages 1115–1154, https://doi.org/10.1093/rof/rfy028 is available online at: https://academic.oup.com/rof/article/23/6/1115/5077242

PY - 2019/10/31

Y1 - 2019/10/31

N2 - We study whether industrial firms risk-shift in response to distress risk increases induced through hurricane strikes. Using new proxies capturing deliberate managerial decisions about the risk of a firm’s operating segment portfolio, differences tests suggest that hurricane strikes prompt moderately, but not highly, distressed firms to skew their asset mixes towards riskier segments by shutting down low-risk, high-average-Q segments. In turn, the moderately distressed firms observe abnormally high failure rates after a hurricane strike. Employing covenant violation data, we offer further evidence that creditor control prevents highly distressed firms from raising their risk. Our conclusions extend those of other studies by suggesting that moderate distress risk levels can lead the managers of industrial firms to not only engage in risk-taking, but, in fact, in risk-shifting.

AB - We study whether industrial firms risk-shift in response to distress risk increases induced through hurricane strikes. Using new proxies capturing deliberate managerial decisions about the risk of a firm’s operating segment portfolio, differences tests suggest that hurricane strikes prompt moderately, but not highly, distressed firms to skew their asset mixes towards riskier segments by shutting down low-risk, high-average-Q segments. In turn, the moderately distressed firms observe abnormally high failure rates after a hurricane strike. Employing covenant violation data, we offer further evidence that creditor control prevents highly distressed firms from raising their risk. Our conclusions extend those of other studies by suggesting that moderate distress risk levels can lead the managers of industrial firms to not only engage in risk-taking, but, in fact, in risk-shifting.

KW - Agency conflicts

KW - risk-shifting

KW - distress risk

KW - segment data

KW - hurricane strikes

U2 - 10.1093/rof/rfy028

DO - 10.1093/rof/rfy028

M3 - Journal article

VL - 23

SP - 1115

EP - 1154

JO - Review of Finance

JF - Review of Finance

SN - 1572-3097

IS - 6

ER -