Does Firm-Specific Risk Motive the Asset Substitution Problem?

• Main Authors: Liu, Chao-Jhih, 劉超智
• Other Authors: Hsieh, Pei-Fang
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/43026406027329009896

碩士 === 國立清華大學 === 計量財務金融學系 === 102 === This study investigates the motivation of asset substitution problem. I find the firm-specific risk is significantly positive related with the firm's overinvestment level. My finding confirms that the asset substitution problem is motive from the firm-specific risk, because the call value that can be viewed as the value of firm's equity position is increasing when the risk of the underlying asset increases. Moreover, I use option implied bankruptcy probability to measure bankruptcy risk and find the asset substitution problem will be enhanced by high firm-specific risk especially at those high bankruptcy risk firms.