Managerial Option Value, Cyclicality and Credit Risk
Date Issued
2007
Date
2007
Author(s)
Huang, Wen-Yen
DOI
en-US
Abstract
This study discusses the relationship between managerial options, cyclicality and credit risk. The research questions are: First, is managerial option value affected by the business cycle? Second, is a firm’s default probability affected by the business cycle? Third, does strategic activity influence a firm’s credit risk? Finally, do focused and diversified strategic activities have different effects on a firm’s credit risk? Our empirical results show that the timing of conducting a strategic activity is important. Expansive activities create value to a firm when they are conducted at the end of a recession period or at the beginning of a growth period. We also find that a firm’s default probability has a negative relationship to the corporate life cycle, and industrial and macroeconomic cyclicality. Moreover, we find that a firm’s credit risk decreases if the strategic activity creates value. Finally, we find that the credit risk mitigation phenomenon of focused mergers is more significant than that of diversified mergers.
Subjects
管理選擇權價值
景氣循環
信用風險
managerial option value
cyclicality
credit risk
Type
thesis