We analyze the announcement-period returns of 4315 two-party, non-equity alliances undertaken by US-based firms between 1986 and 2015 in 11 industries and find positive returns for all of the 11 samples, with the Drug industry reporting the highest (2.69%) cumulative abnormal return (CARs) and Wholesale Trade for Non-Durable Goods industry the lowest (0.84%) around the five-day window surrounding the announcement of the alliances. Using proxy variables, we study whether the alliances in the specific industry are motivated by Exploration, Exploitation, or a combination of both Exploration and Exploitation motive. We find strong evidence that the alliances in the Business Services; Computer and Office Equipment; Electronic and Electrical Equipment; and Telecommunications industries are Exploration motivated. Alliances in the Investment & Commodity Firms, Dealers, and Exchanges; Measuring, Medical, Photo Equipment and Clocks; Prepackaged Software; and Wholesale Trade-Durable Goods industries are motivated by the Exploitation motive, whereas alliances in the Communications Equipment and Drugs industries are motivated by both Exploration and Exploitation (dual) motives. The average CAR (ACAR) for alliances in industries motivated by both Exploration and Exploitation motives is the highest at 2.2%—thereby, creating the most value—followed by Exploitation motivated at 1.58% and Exploration motivated at 1.23%.

We analyse security design parameters of 1,115 high yield (HY) and investment grade (IG) event risk covenants (ERC) protected issues between 1986 and 2012 from the agency conflict perspective. We find positive and significant stock price reaction to the issuance of HY but not the IG issues. Although, majority of these issues carry a call provision, we find significant design differences in the call provision between HY and IG issues. We find that HY issues provide strong call protection to mitigate the risk of a call due to ratings upgrade, compromising firm’s financial flexibility; resulting financial distress is mitigated by the ERC. IG issues provide weak call protection to fully exploit growth options however, role of ERC is not apparent. We also find evidence of increase in managerial entrenchment due to the presence of ERC in HY firms however, reduction in agency cost of debt supersedes cost of managerial entrenchment.

This study sets out a new methodology to exemplify, through a set of risk metrics called the Greeks, impact of a bond’s structured provisions (e.g., call, put, and conversion options) on its risk characteristics and its propensity for agency conflicts. The methodology is assessed by applying it to a sample of 159 non-convertible bonds, with time-scheduled call and put provisions issued between 1977 and 2005. A structural contingent-claims valuation model is used to value the bonds and estimate the Greeks. The methodology is used to assess the impact of the call and put provisions on the bond’s credit risk and interest-rate risk, as well as the provisions’ ability to mitigate the agency conflict associated with over-investment, under-investment, asset-substitution, and information asymmetry about the firm’s true risk among stakeholders. The main findings of this study are that the put option plays a key role in reducing credit risk, mitigating agency conflict, and protecting against volatility shocks; conversely, the call option plays a key role in reducing interest-rate risk. The methodology is sufficiently general to apply to bonds and preferred stock with any set of structured provisions.

This paper explores the effectiveness of an innovative risk scoring FinTech model to predict the risk appropriate return of short-term credit sales. The risk score serves to mitigate the information asymmetry between the seller of receivables (“Seller”) and the purchaser (“Funder”), at the same time provides opportunity to the Funder to earn returns as well as diversify their portfolio on a risk appropriate basis. Selling receivables/credit to potential Funders at a discount helps Sellers maintain their short-term financial stability and provide the necessary cashflow for operations and other immediate financial needs. We use 18,304 short-term credit sales transactions between April 23, 2020, and September 30, 2022, from a private FinTech startup, and its Sustainability, Underwriting, Risk, & Financial (SURF) risk-scoring system to analyze the risk return relationship. The data includes risk scores for both Sellers of receivables (e.g., invoices) along with the Obligors (firms purchasing goods and services from the Seller) on these receivables, and provides, as outputs, the mutual gains by the Sellers and the financial institutions or other investors funding the receivables. Our analysis shows that the SURF score is instrumental in mitigating the information asymmetry between the Sellers and the Funders and provides risk appropriate periodic returns to the Funders across industries. A comparative analysis shows that the use of SURF technology generates higher risk appropriate annual internal rate of returns (IRR) as compared to nonuse of the SURF scoring system in these transactions. While Sellers and Funders enter in a win-win relationship (in the absence of a default), generally Sellers of credit are not often scored based on the potential diversification by industry classification. Crowdz’s SURF technology does so and provides the Funders with diversification opportunities with numerous invoices of differing amounts and SURF scores in a wide range of industries. The analysis also shows that Sellers generally have lower financing stability compared to the Obligors (payers on receivables), a fact captured in the SURF scores.