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Risk-shifting and investment asymmetry

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  • Eisdorfer, Assaf

Abstract

I show that when shareholders can change not only the variance of the future firm value, but also its asymmetry, they can shift costly risk to bondholders while lowering the firm risk, and more importantly, the equity risk and the probability of bankruptcy. The implication of this result is that risk-shifting behavior can be more beneficial to shareholders than currently perceived in the literature.

Suggested Citation

  • Eisdorfer, Assaf, 2010. "Risk-shifting and investment asymmetry," Finance Research Letters, Elsevier, vol. 7(4), pages 232-237, December.
    • Handle: RePEc:eee:finlet:v:7:y:2010:i:4:p:232-237
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    Cited by:

    1. Valeria V. Lakshina, 2019. "Do Portfolio Investors Need To Consider The Asymmetry Of Returns On The Russian Stock Market?," HSE Working papers WP BRP 75/FE/2019, National Research University Higher School of Economics.
    2. Jelisavka Bulatovic, 2011. "Application of Method of Financial Risk in Serbian Companies - Survey Sample Company," International Journal of Economics and Financial Issues, Econjournals, vol. 1(2), pages 54-73, June.
    3. Kim, Thomas, 2015. "Does individual-stock skewness/coskewness reflect portfolio risk?," Finance Research Letters, Elsevier, vol. 15(C), pages 167-174.

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    Keywords

    Risk-shifting Investment;

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