According to the conventional wisdom in corporate finance, expected bankruptcy costs are reduced when projects are financing jointly rather than separately. In this paper, we argue that the same logic that generates the diversification synergies of joint financing also generates dissynergies in some cases. By exploiting a connection with the industrial organization literature on product bundling, we characterize conditions for diversification to increase (rather than reduce) the probability of bankruptcy. We also identify situations in which it is optimal for a firm to finance two projects separately, even though joint finance would result in a lower interest rate.

Redner

Albert Banal-Estanol

Pompeu Fabra University

Termin

17.12.2007 | 16:00 - 17:30

Veranstaltungsort

ZEW, L 7,1 D-68161 Mannheim

Raum

Straßburg