Alexander Belyakov

• Alexander Belyakov, Leverage and Financing in Distress. Abstract

  Very few firms issue equity to refinance their debt in distress. This simple observation has an important effect on the predictions of capital structure models. A model in which highly-levered firms needing external finance must issue debt explains the overall underleverage puzzle, fully replicates the ‘fat’ right tail of cross-sectional leverage distribution, and produces realistic default probabilities across firms with different leverage values. The model succeeds even if bankruptcy costs are only 10% of firm’s assets, whereas the model that allows for equity issuance requires bankruptcy costs to exceed 60% in order to generate plausible average leverage.

• Alexander Belyakov, Omitted Variable in Capital Structure Regressions. Abstract

  This paper addresses two puzzling empirical results in the capital structure literature: why leverage and profitability are negatively correlated, and why investments are explained by the cash flow in a regression controlled for the market-to-book ratio. The paper derives a model, in which firms are heterogeneous in the quality of their investment opportunities. Firms with ex-ante better investment opportunities 1) issue less debt that is not dedicated to finance invest- ments, and 2) are able to raise debt at a smaller rate conditioning on the leverage, which results in a smaller leverage over time in this group of firms. Firms with ex-ante better investment opportunities also invest more, have greater ex-post profitability and greater cash flows. The model presented in the paper is simple and tractable, yet it gives a very good quantitative fit to the data.

• Alexander Belyakov, Economics of Leveraged Buyouts: Theory and Evidence from the UK Private Equity Industry. Abstract

  Empirical analysis of a sample of companies with private equity (PE) ownership in the UK shows that PE firms act as deep-pocket investors for their portfolio companies, rescuing them if they fall in financial distress. In contrast, external financing is expensive for companies without PE-ownership in financial distress. The paper builds a model that shows how companies form rational expectations about the costs of financial distress, and how these expectations affect ex-ante policies. The model explains the empirically-observed differences in how companies with and without PE-ownership invest, pay dividends, and issue debt. In particular, the model quantitatively explains the difference in leverage of companies with and without PE-ownership. The model shows that greater tax-shield benefits and superior growth of PE-backed companies can explain 6.4% of the abnormal return of PE firms. The conclusion that follows from the paper, however, is that abnormal returns PE firms cannot be replicated by other investors.

Knowledge @ Wharton

• College Football Playoffs with Bill Connelly, Knowledge @ Wharton - 01/08/2025
• The Real Estate Market Survived Until 2025. What’s Next?, Knowledge @ Wharton - 01/07/2025
• AI in 2025: What Challenges Lie Ahead?, Knowledge @ Wharton - 01/07/2025
• Jeremy Siegel: 2025 Outlook for Stocks and the Economy, Knowledge @ Wharton - 01/07/2025
• What’s Ahead for Real Estate in 2025?, Knowledge @ Wharton - 01/07/2025
• Confidence in Cryptocurrency | David Reibstein and John Zhang (Part 1), Knowledge @ Wharton - 01/07/2025
• What’s Ahead for the Economy in 2025, Knowledge @ Wharton - 01/06/2025
• How Did AI Grow in 2024 and What’s in Store for 2025?, Knowledge @ Wharton - 01/02/2025
• NFL Data Science with Tom Bliss, Knowledge @ Wharton - 12/25/2024
• Overwhelmed by Too Many Choices When Shopping? Wharton Retail Expert Weighs In, Knowledge @ Wharton - 12/19/2024