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Indiana University Bloomington

Department of Finance

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Research and Publications

Journal Articles

Empirical Evidence on Corporate Risk-Shifting

2013, The Financial Review

A. Danielova, S. Sarkar, G. Hong


We study empirically whether nonfinancial firms’ behavior is consistent with systematic risk‐shifting. We compare firms’ operating risk before and after a debt issue, under the assumption that if there is any risk‐shifting it is most likely to occur right after a debt issue. We document a significant increase in firms’ operating risk, even after adjusting for industry influences. The risk‐shifting is higher for firms with no subsequent debt issues, and for firms with lower credit ratings. Other determinants are earnings volatility, size of debt issue, and whether the bond is callable.


Danielova, A., S. Sarkar, and G. Hong (2013), "Empirical Evidence on Corporate Risk-Shifting," The Financial Review, 48 (3), 443-460.