股票价格风险中英文对照外文翻译文献

中英文对照外文翻译文献

(文档含英文原文和中文翻译)

财务风险重要性分析
摘 要：本文探 讨了美国大型非金融企业从1964年至2008年股票价格风险的决定小
性因素。我们通过相关结构以 及简化模型，研究诸如债务总额，债务期限，现金持有
量，及股利政策等公司财务特征，我们发现，股票 价格风险主要通过经营和资产特点，
如企业年龄，规模，有形资产，经营性现金流及其波动的水平来体现 。与此相反，隐
含的财务风险普遍偏低，且比产权比率稳定。在过去30年，我们对财务风险采取的措施有所减少，反而对股票波动（如独特性风险）采取的措施逐渐增加。因此，股票
价格风险的记载 趋势比公司的资产风险趋势更具代表性。综合二者，结果表明，典型
的美国公司谨慎管理的财政政策大大 降低了财务风险。因此，现在看来微不足道的剩
余财务风险相对底层的非金融公司为一典型的经济风险。

关键词：资本结构；财务风险；风险管理；企业融资
1 绪论
200 8年的金融危机对金融杠杆的作用产生重大影响。毫无疑问，向金融机构的
巨额举债和内部融资均有风险 。事实上，有证据表明，全球主要银行精心策划的杠杆

（如通过抵押贷款和担 保债务）和所谓的“影子银行系统”可能是最近的经济和金融
混乱的根本原因。财务杠杆在非金融企业的 作用不太明显。迄今为止，尽管资本市场
已困在危机中，美国非金融部门的问题相比金融业的困境来说显 得微不足道。例如，
非金融企业破产机遇仅限于自20世纪30年代大萧条以来的最大经济衰退。事实上 ，
非金融公司申请破产的事件大都发生在美国各行业（如汽车制造业，报纸，房地产）
所面临的 基本经济压力即金融危机之前。这令人惊讶的事实引出了一个问题 “非金
融公司的财务风险是如何重要 ？”。这个问题的核心是关于公司的总风险以及公司风
险组成部分的各决定因素的不确定性。
最近在资产定价和企业融资再度引发的两个学术研究中分析了股票价格风险利
率。一系列的资产定价文献 探讨了关于卡贝尔等的发现。（2001）在过去的40年，
公司特定（特有）的风险有增加的趋势。相 关的工作表明，个别风险可能是一个价格
风险因素（见戈亚尔和克莱拉，2003年）。也关系到牧师和 维罗妮卡的工作研究结
果（2003年），显示投资者对公司盈利能力是其特殊风险还是公司价值不确定 的重
要决定因素。其他研究（如迪切夫，1998年，坎贝尔，希尔舍，和西拉吉，2008）
已经研究了股票，债券价格波动的作用。
然而，股票价格风险实证研究的大部分工作需要提供资产风险 或试图解释特有风
险的趋势。与此相反，本文从不同的角度调查股票价格风险。首先，我们通过在公司< br>经营中有关的产品所固有的风险（即，经济或商业风险）来考虑为企业融资业务风险，
和企业运营 有关的财务风险（即，金融风险）。第二，我们试图评估经济和财务风险
的相对重要性以及对金融政策的 影响。
莫迪利亚尼和米勒提早研究（1958）认为，财政政策可以在很大程度上与公司价
值 无关，因为投资者可以通过咨询许多金融公司最终以较低的成本入资（即，通过自
制的杠杆）同时运作良 好的资本市场应该可以区分金融危机和经济危机。尽管如此，
金融政策，如增加债务资本结构，可以放大 财务风险。相反，对企业风险管理最近的
研究表明，企业通过发行金融衍生品也可以减少企业风险和增加 企业价值。然而，本
研究的动机往往是与金融危机有关的巨额成本或其他相关费用和与财务杠杆有关的< br>市场缺陷。实证研究表明金融危机如何侵蚀一家典型上市公司的巨额帐户。
我们试图通过直接处 理公司风险因素分析整体经济和金融风险的作用。在我们的
分析过程中，我们利用了美国非金融公司的大 样本。我们确定的股票价格风险的最重
要决定因素（波动性）视为通过财务杠杆将资产转化为股权的财政 政策。因此，在整
个论文中，我们考虑了连接资产波动和股权波动的财务杠杆。由此可知，财务杠杆可< br>以衡量资产和股权的波动性。由于财政政策是由经营者（或经营者）决定，因此我们
应该注意与企 业资产和运营有关的金融政策的影响。具体来说，我们研究了以前的研
究表明的各种特点，并尽可能明确 区分与公司运营有关的风险（即决定经济的风险因
素）和与企业融资有关的风险（即财务风险的决定因素 ）。然后，我们使经济风险成

为利兰和托夫特（1996）模型或者是降低财 务杠杆的模型中财政政策的决定性因素。
采用结构模型的优点是，我们能够考虑，无论是有关财务及经营 问题的一些可能性因
素（如分红），还是一般破产决定，且为财政政策内生性的可能性。
我们 代理的公司风险是从股票每天回报率的标准差而得的普通股的收益波动性
计算而来。我们代理的经济风险 是用来维护的公司的业务和资产，确定产生的现金流
量的过程为公司的本质特征。例如，企业规模和年龄 可以衡量企业的成熟度；有形资
产（厂房，财产和设备）代表一个公司的“硬件”；资本开支衡量资本密 集度以及企
业发展潜力。营业利润及其波动性可以衡量现金流量的及时性和存在的风险。要了解
公司财务风险的影响因素，我们需考察总债务，债务期限，股息支出，以及现金和短
期投资。
我们分析的核心结果是惊人的：一个典型公司经济风险的决定性因素可以解释绝
大多数股票的波动性变化 。相应地，隐含的财务杠杆远远比看到的负债比率低。具体
来说，我们在涵盖1964年至2008年的 样本中平均实际净财务（市场）杠杆约为1.50，
而我们的估计值（根据型号不同规格，估计技术）在 1.03和1.11之间。这表明，企
业可能采取其他金融政策管理金融风险，从而将有效杠杆降低到几 乎可以忽略不计的
水平。这些政策可能包括动态调整财务变量，如债务水平，债务期限，或现金控股（见
如阿查里雅，阿尔梅达，和坎佩洛，2007）。此外，许多公司也利用诸如金融衍生工
具，与 投资者的合同安排（如信贷额度，债务合同要求规定，或在供应商合同应急费
用），车辆特殊用途（特殊 目的公司）使用明确的金融风险管理技术，或其他替代风
险转移技术。
对股票波动性产生影响 的经济风险因素预测的迹象通常非常显著。此外，影响的
幅度也是巨大的。我们发现，股权会随着企业规 模和年龄的大小而波动。这是直观的，
因为大型和成熟的企业通常有反映资本报酬波动的较稳定业务范围 。资本支出的减少
对股票的波动影响较弱。与牧师和韦罗内西（2003年）的预测相一致，我们发现，
具有较高的盈利能力和较低的利润波动性的公司股票的波动性较低。这表明，有更高，
更稳定的 经营性现金流量的公司破产的可能性较小，因此存在潜在风险的可能性较
小。在所有的经济风险因素中， 公司规模，利润波动及股利政策对股票波动性的的影
响突出。不像以前的一些研究中，我们对增加总公司 杠杆风险的财政政策的内生性精
心研究证实。否则，金融风险与总风险存在不确定的关系。
鉴 于大量关于财政政策文献的研究，毫不奇怪，至少部分金融变量由企业存在的
经济风险决定。不过，具体 的调查结果有些出人意料。例如，在一个简单的模型中，
资本结构，股利支出会增加财务杠杆，因为它们 代表了一个企业（即增加的净债务）
的现金流出。我们发现，股息与低风险有关。这表明，分红没有金融 政策和作为一个
公司运营特点的产品那么多（例如，有限的增长机会成熟的公司）。我们也估计不同的风险因素随时间变化的敏感性不同。我们的研究结果表明，大多数关系都相当稳定。

一个例外是1983年之前企业年龄往往与风险是恒定的正相关关系，而之后一直与风
险持 续负相关关系。这与布朗和卡帕迪亚（2007年）的调查结果相吻合，最新趋势
是独特性风险与在股票 上市的年轻、高风险公司密切相关。
也许最有趣的是我们的分析结果，过去30年，在隐含的金融杠杆 下降的同时，
股票的价格风险（如独特性风险）似乎一直在增加。事实上，从我们的结构模型来看
隐含的财务杠杆，在我们的样本中调停在近1.0（即无杠杆）。这有几个可能的原因。
首先，在过去 30年，非金融企业的总负债率稳步下降，，所以我们的隐含杠杆也应
减少。第二，企业显著增加现金持 有量，这样，净债务（债务减去现金和短期投资）
也有所下降。第三，上市公司的构成发生了变化产生更 多的风险（尤其是技术导向）。
这些公司往往在其资本结构中债务较少。第四，如上所述，企业可以进行 金融风险管
理的各种活动。只要这些活动在过去几十年中有上升幅度，企业将成为受到金融风险
因素影响较少的对象。
我们进行一些额外的测试，我们的结果提供了实证研究。首先，我们重复同一个
简化式模型，估计强加的最低结构刚性，找到我们非常相似的分析结果。这表明我们
的结果是不 太可能受模型假设错误的驱动。我们也比较所有美国非金融公司的总债务
水平与业绩的趋势，并找到与我 们的结论相一致的证据。最后，我们看看过去三年经
济衰退的各地上市非金融公司破产的文件，并找到证 据表明，这些企业正越来越多地
受到经济危机而不是金融危机影响的观点。
总之，我们的结果 表明，从实际来看，剩余的财务风险对现在典型的美国公司来
说相对不重要。这就是对财务成本水平预期 问题，因为发生财务危机的可能性有可能
低于大多数公司的一般可能性。例如，我们的结果表明，如果不 考虑隐含的财务杠杆
（如迪切夫，1998年）的趋势，将会对风险债券的系统性定价水平估计可能有偏 差。
我们的研究结果也质疑用以估计违约概率的金融模式是否恰当，因为，可能难以通过
观察实 施大幅降低风险的财政政策。最后，我们的研究结果意味着，由资本产生的基
本风险主要与资本的有效配 置产生的潜在经济风险有关。
在开始之前我们先评论一下我们分析的潜在观点。一些读者可能想将其解 释为我
们的结果表明财务风险并不重要。这不是正确的解释。相反，我们的结果表明，企业
可以 管理财务风险，使股东承担较低的经济风险。当然，财务风险对企业来讲非常重
要，只是选择承担高负债 水平或缺乏管理风险的不同罢了。相比之下，我们的研究表
明，典型的非金融类公司选择不采取这些风险 。总之，财务总风险可能是重要的，但
公司可以管理它。与此相反，基本的经济和商业风险更难以（或不 受欢迎）预防，因
为他们可以代表机制，使企业赢得经济效益。
下面本文进行条理分析。动机 ，相关文献，和假设在第2节进行回顾。第3节描
述了我们使用的模型，接着在第4节对其数据进行介绍 。利兰-托夫特模型的实证结

果列在第5节。第6节根据简化模型讨论了美国 无金融因素的债务总额数据，以及在
过去25年对破产申请的分析估计；并作总结。
2 动机，相关文献，并假设
研究公司风险及其影响因素对金融的所有领域来说是非常重要的。在有关企业 融
资的文献中，企业的风险对优化资本结构，资产置换的代理成本的各种基本问题产生
直接影响 。同样，公司风险的特点是所有资产定价模型中的基本因素。
企业融资的文献往往与金融风险相关的市 场缺陷密切联系。在莫迪利亚尼米勒
（1958年）的框架内，金融风险（或更一般的财政政策）是无关 紧要的，因为投资
者可以自行了解公司的财务决策。因此，运作良好的资本市场应该能够区分金融危机< br>和经济破产。例如，安德拉德和卡普兰（1998）通过分析高杠杆交易仔细区分了金融
和经济困 境成本，最终发现财务困境成本对公司子集来说是很小的，所以是一个不会
经历“经济”冲击的。他们的 结论是财务困境成本对典型企业来说应该很小或微不足
道。卡普兰和斯坦因（1990）分析高杠杆交易 发现，继资本结构调整之后股本惊奇的
增加。
对金融政策进行的辩论继续进行，但是，没有处 理财务杠杆驱动公司整体风险的
相关性。我们的研究将从这个角度进行辩论。相应地，将公司风险分解成 金融和经济
风险是我们研究的核心。
企业风险管理研究表明财务风险的作用明确为企业研究的 动机进行对冲活动。特
别是对冲理论认为企业受不完善资本市场中存在的积极汇价变动的影响。这些措施 可
能包括有关资产替代投资不足或代理费用（见贝赛蔓，1991，延森and梅克林，1976，迈尔斯，1977，弗罗，沙尔夫斯泰因，和斯坦因，1993），破产成本和税收（史密斯
和施特 尔茨，1985），以及管理风险厌恶（施特尔茨，1990）。然而，企业风险管理
文献一般不解决企 业风险，所以其一直是资产定价系统定价的主要焦点。
林特纳（1965）和夏普（1964）在多变 的框架中定义了局部均衡的风险定价。在
这种结构中，总风险分解为系统性风险和个别风险，系统风险， 只包含一个无通胀的
市场价格。然而，坎贝尔（2001年）发现，在过去四十年来公司特定风险已大幅 增
加，且各种研究已发现，个别风险是价格因素（戈亚尔和圣克拉拉，2003，海德里克，
2 006）。研究确定各个企业的特点（即，工业增长速度，机构持股，平均企业规模，
成长期权，企业年 龄，风险和盈利能力）与企业特有的风险.最近有关研究也研究了
股票价格风险对财务困境成本的影响（ 戈亚尔和塔斯勒，2003，阿尔梅达和菲利蓬，
2007，等等）。同样的，基本的经济风险已被证明 和股票风险因素相关（见，例如，
维塞利亚，2003，和引文文献）。理查森（2009）使用债务层 面上的数据研究公司资
产波动性，最终发现资产的波动表现出巨大的时间序列变化以及金融杠杆对股权的 波
动有重大影响。

The Important Of Financial Risk
作者：Sohnke M. Bartram, Gregory W. Brown, and Murat Atamer
起止页码：1-7
出版日期（期刊号）：September 2009,Vol. 2, No. 4(Serial No. 11)
出版单位：Theory and Decision, DOI 10.1007s11238-005-4590-0
Abstract：This paper examines the determinants of equity price risk for a large
sample of non-financial corporations in the United States from 1964 to 2008. We
estimate both structural and reduced form models to examine the endogenous nature
of corporate financial characteristics such as total debt, debt maturity, cash holdings,
and dividend policy. We find that the observed levels of equity price risk are
explained primarily by operating and asset characteristics such as firm age, size, asset
tangibility, as well as operating cash flow levels and volatility. In contrast, implied
measures of financial risk are generally low and more stable than debt-to- equity ratios.
Our measures of financial risk have declined over the last 30 years even as measures
of equity volatility (e.g. idiosyncratic risk) have tended to increase. Consequently,
documented trends in equity price risk are more than fully accounted for by trends in
the riskiness of firms? assets. Taken together, the results suggest that the typical U.S.
firm substantially reduces financial risk by carefully managing financial policies. As a
result, residual financial risk now appears negligible relative to underlying economic
risk for a typical non-financial firm.

Keywords：Capital structure； financial risk； risk management；corporate finance
1 Introduction
The financial crisis of 2008 has brought significant attention to the effects of
financial leverage. There is no doubt that the high levels of debt financing by financial
institutions and households significantly contributed to the crisis. Indeed, evidence
indicates that excessive leverage orchestrated by major global banks (e.g., through the
mortgage lending and collateralized debt obligations) and the so-called “shadow
banking system” may be the underlying cause of the recent economic and financial
dislocation. Less obvious is the role of financial leverage among nonfinancial firms.
To date, problems in the U.S. non-financial sector have been minor compared to the
distress in the financial sector despite the seizing of capital markets during the crisis.
For example, non-financial bankruptcies have been limited given that the economic

decline is the largest since the great depression of the 1930s. In fact, bankruptcy
filings of non-financial firms have occurred mostly in U.S. industries (e.g.,
automotive manufacturing, newspapers, and real estate) that faced fundamental
economic pressures prior to the financial crisis. This surprising fact begs the question,
“How important is financial risk for non-financial firms?” At the heart of this issue is
the uncertainty about the determinants of total firm risk as well as components of firm
risk.

Recent academic research in both asset pricing and corporate finance has
rekindled an interest in analyzing equity price risk. A current strand of the asset
pricing literature examines the finding of Campbell et al. (2001) that firm-specific
(idiosyncratic) risk has tended to increase over the last 40 years. Other work suggests
that idiosyncratic risk may be a priced risk factor (see Goyal and Santa-Clara, 2003,
among others). Also related to these studies is work by Pástor and Veronesi (2003)
showing how investor uncertainty about firm profitability is an important determinant
of idiosyncratic risk and firm value. Other research has examined the role of equity
volatility in bond pricing (e.g., Dichev, 1998, Campbell, Hilscher, and Szilagyi,
2008).
However, much of the empirical work examining equity price risk takes the risk
of assets as given or tries to explain the trend in idiosyncratic risk. In contrast, this
paper takes a different tack in the investigation of equity price risk. First, we seek to
understand the determinants of equity price risk at the firm level by considering total
risk as the product of risks inherent in the firms operations (i.e., economic or business
risks) and risks associated with financing the firms operations (i.e., financial risks).
Second, we attempt to assess the relative importance of economic and financial risks
and the implications for financial policy.
Early research by Modigliani and Miller (1958) suggests that financial policy
may be largely irrelevant for firm value because investors can replicate many
financial decisions by the firm at a low cost (i.e., via homemade leverage) and
well-functioning capital markets should be able to distinguish between financial and
economic distress. Nonetheless, financial policies, such as adding debt to the capital
structure, can magnify the risk of equity. In contrast, recent research on corporate risk
management suggests that firms may also be able to reduce risks and increase value
with financial policies such as hedging with financial derivatives. However, this
research is often motivated by substantial deadweight costs associated with financial

distress or other market imperfections associated with financial leverage. Empirical
research provides conflicting accounts of how costly financial distress can be for a
typical publicly traded firm.
We attempt to directly address the roles of economic and financial risk by
examining determinants of total firm risk. In our analysis we utilize a large sample of
non-financial firms in the United States. Our goal of identifying the most important
determinants of equity price risk (volatility) relies on viewing financial policy as
transforming asset volatility into equity volatility via financial leverage. Thus,
throughout the paper, we consider financial leverage as the wedge between asset
volatility and equity volatility. For example, in a static setting, debt provides financial
leverage that magnifies operating cash flow volatility. Because financial policy is
determined by owners (and managers), we are careful to examine the effects of firms?
asset and operating characteristics on financial policy. Specifically, we examine a
variety of characteristics suggested by previous research and, as clearly as possible,
distinguish between those associated with the operations of the company (i.e. factors
determining economic risk) and those associated with financing the firm (i.e. factors
determining financial risk). We then allow economic risk to be a determinant of
financial policy in the structural framework of Leland and Toft (1996), or
alternatively, in a reduced form model of financial leverage. An advantage of the
structural model approach is that we are able to account for both the possibility of
financial and operating implications of some factors (e.g., dividends), as well as the
endogenous nature of the bankruptcy decision and financial policy in general.
Our proxy for firm risk is the volatility of common stock returns derived from
calculating the standard deviation of daily equity returns. Our proxies for economic
risk are designed to capture the essential characteristics of the firms? operations and
assets that determine the cash flow generating process for the firm. For example, firm
size and age provide measures of line of- business maturity; tangible assets (plant,
property, and equipment) serve as a proxy for the ?hardness? of a firm?s assets; capital
expenditures measure capital intensity as well as growth potential. Operating
profitability and operating profit volatility serve as measures of the timeliness and
riskiness of cash flows. To understand how financial factors affect firm risk, we
examine total debt, debt maturity, dividend payouts, and holdings of cash and
short-term investments.
The primary result of our analysis is surprising: factors determining economic

risk for a typical company explain the vast majority of the variation in equity
volatility. Correspondingly, measures of implied financial leverage are much lower
than observed debt ratios. Specifically, in our sample covering 1964-2008 average
actual net financial (market) leverage is about 1.50 compared to our estimates of
between 1.03 and 1.11 (depending on model specification and estimation technique).
This suggests that firms may undertake other financial policies to manage financial
risk and thus lower effective leverage to nearly negligible levels. These policies might
include dynamically adjusting financial variables such as debt levels, debt maturity, or
cash holdings (see, for example, Acharya, Almeida, and Campello, 2007). In addition,
many firms also utilize explicit financial risk management techniques such as the use
of financial derivatives, contractual arrangements with investors (e.g. lines of credit,
call provisions in debt contracts, or contingencies in supplier contracts), special
purpose vehicles (SPVs), or other alternative risk transfer techniques.
The effects of our economic risk factors on equity volatility are generally highly
statistically significant, with predicted signs. In addition, the magnitudes of the effects
are substantial. We find that volatility of equity decreases with the size and age of the
firm. This is intuitive since large and mature firms typically have more stable lines of
business, which should be reflected in the volatility of equity returns. Equity volatility
tends to decrease with capital expenditures though the effect is weak. Consistent with
the predictions of Pástor and Veronesi (2003), we find that firms with higher
profitability and lower profit volatility have lower equity volatility. This suggests that
companies with higher and more stable operating cash flows are less likely to go
bankrupt, and therefore are potentially less risky. Among economic risk variables, the
effects of firm size, profit volatility, and dividend policy on equity volatility stand out.
Unlike some previous studies, our careful treatment of the endogeneity of financial
policy confirms that leverage increases total firm risk. Otherwise, financial risk
factors are not reliably related to total risk.
Given the large literature on financial policy, it is no surprise that financial
variables are,at least in part, determined by the economic risks firms take. However,
some of the specific findings are unexpected. For example, in a simple model of
capital structure, dividend payouts should increase financial leverage since they
represent an outflow of cash from the firm (i.e., increase net debt). We find that
dividends are associated with lower risk. This suggests that paying dividends is not as
much a product of financial policy as a characteristic of a firm?s operations (e.g., a

mature company with limited growth opportunities). We also estimate how
sensitivities to different risk factors have changed over time. Our results indicate that
most relations are fairly stable. One exception is firm age which prior to 1983 tends to
be positively related to risk and has since been consistently negatively related to risk.
This is related to findings by Brown and Kapadia (2007) that recent trends in
idiosyncratic risk are related to stock listings by younger and riskier firms.
Perhaps the most interesting result from our analysis is that our measures of
implied financial leverage have declined over the last 30 years at the same time that
measures of equity price risk (such as idiosyncratic risk) appear to have been
increasing. In fact, measures of implied financial leverage from our structural model
settle near 1.0 (i.e., no leverage) by the end of our sample. There are several possible
reasons for this. First, total debt ratios for non-financial firms have declined steadily
over the last 30 years, so our measure of implied leverage should also decline. Second,
firms have significantly increased cash holdings, so measures of net debt (debt minus
cash and short-term investments) have also declined. Third, the composition of
publicly traded firms has changed with more risky (especially technology-oriented)
firms becoming publicly listed. These firms tend to have less debt in their capital
structure. Fourth, as mentioned above, firms can undertake a variety of financial risk
management activities. To the extent that these activities have increased over the last
few decades, firms will have become less exposed to financial risk factors.
We conduct some additional tests to provide a reality check of our results. First,
we repeat our analysis with a reduced form model that imposes minimum structural
rigidity on our estimation and find very similar results. This indicates that our results
are unlikely to be driven by model misspecification. We also compare our results with
trends in aggregate debt levels for all U.S. non-financial firms and find evidence
consistent with our conclusions. Finally, we look at characteristics of publicly traded
non-financial firms that file for bankruptcy around the last three recessions and find
evidence suggesting that these firms are increasingly being affected by economic
distress as opposed to financial distress.
In short, our results suggest that, as a practical matter, residual financial risk is
now relatively unimportant for the typical U.S. firm. This raises questions about the
level of expected financial distress costs since the probability of financial distress is
likely to be lower than commonly thought for most companies. For example, our
results suggest that estimates of the level of systematic risk in bond pricing may be

biased if they do not take into account the trend in implied financial leverage (e.g.,
Dichev, 1998). Our results also bring into question the appropriateness of financial
models used to estimate default probabilities, since financial policies that may be
difficult to observe appear to significantly reduce risk. Lastly, our results imply that
the fundamental risks born by shareholders are primarily related to underlying
economic risks which should lead to a relatively efficient allocation of capital.
Before proceeding we address a potential comment about our analysis. Some
readers may be tempted to interpret our results as indicating that financial risk does
not matter. This is not the proper interpretation. Instead, our results suggest that firms
are able to manage financial risk so that the resulting exposure to shareholders is low
compared to economic risks. Of course, financial risk is important to firms that
choose to take on such risks either through high debt levels or a lack of risk
management. In contrast, our study suggests that the typical non-financial firm
chooses not to take these risks. In short, gross financial risk may be important, but
firms can manage it. This contrasts with fundamental economic and business risks
that are more difficult (or undesirable) to hedge because they represent the mechanism
by which the firm earns economic profits.
The paper is organized at follows. Motivation, related literature, and hypotheses
are reviewed in Section 2. Section 3 describes the models we employ followed by a
description of the data in Section 4. Empirical results for the Leland-Toft model are
presented in Section 5. Section 6 considers estimates from the reduced form model,
aggregate debt data for the no financial sector in the U.S., and an analysis of
bankruptcy filings over the last 25 years. Section 6 concludes.
2 Motivation, Related Literature, and Hypotheses
Studying firm risk and its determinants is important for all areas of finance. In
the corporate finance literature, firm risk has direct implications for a variety of
fundamental issues ranging from optimal capital structure to the agency costs of asset
substitution. Likewise, the characteristics of firm risk are fundamental factors in all
asset pricing models.
The corporate finance literature often relies on market imperfections associated
with financial risk. In the Modigliani Miller (1958) framework, financial risk (or more
generally financial policy) is irrelevant because investors can replicate the financial
decisions of the firm by themselves. Consequently, well-functioning capital markets
should be able to distinguish between frictionless financial distress and economic

bankruptcy. For example, Andrade and Kaplan (1998) carefully distinguish between
costs of financial and economic distress by analyzing highly leveraged transactions,
and find that financial distress costs are small for a subset of the firms that did not
experience an “economic” shock. They conclude that financial distress costs should
be small or insignificant for typical firms. Kaplan and Stein (1990) analyze highly
levered transactions and find that equity beta increases are surprisingly modest after
recapitalizations.
The ongoing debate on financial policy, however, does not address the relevance
of financial leverage as a driver of the overall riskiness of the firm. Our study joins
the debate from this perspective. Correspondingly, decomposing firm risk into
financial and economic risks is at the heart of our study.
Research in corporate risk management examines the role of total financial risk
explicitly by examining the motivations for firms to engage in hedging activities. In
particular, theory suggests positive valuation effects of corporate hedging in the
presence of capital market imperfections. These might include agency costs related to
underinvestment or asset substitution (see Bessembinder, 1991, Jensen and Meckling,
1976, Myers, 1977, Froot, Scharfstein, and Stein,1993), bankruptcy costs and taxes
(Smith and Stulz, 1985), and managerial risk aversion (Stulz,1990). However, the
corporate risk management literature does not generally address the systematic pricing
of corporate risk which has been the primary focus of the asset pricing literature.
Lintner (1965) and Sharpe (1964) define a partial equilibrium pricing of risk in a
mean variance framework. In this structure, total risk is decomposed into systematic
risk and idiosyncratic risk, and only systematic risk should be priced in a frictionless
market. However, Campbelletal (2001) find that firm- specific risk has increased
substantially over the last four decades and various studies have found that
idiosyncratic risk is a priced factor (Goyal and Santa Clara,2003, Ang, Hodrick, Xing,
and Zhang, 2006, 2008, Spiegel and Wang, 2006). Research has determined various
firm characteristics (i.e., industry growth rates, institutional ownership, average firm
size, growth options, firm age, and profitability risk) are associated with firm-specific
risk. Recent research has also examined the role of equity price risk in the context of
expected financial distress costs (Campbell and Taksler, 2003, Vassalou and Xing,
2004, Almeida and Philippon, 2007, among others). Likewise, fundamental economic
risks have been shown to be to be related to equity risk factors (see, for example,
Vassalou, 2003, and the citations therein). Choiand Richardson (2009) examine the

volatility of the firm?s assets using issue-level data on debt and find that asset
volatilities exhibit significant time-series variation and that financial leverage has a
substantial effect on equity volatility.