Jure Skarabot’s scientific contributions

We consider multiple activities with imperfectly correlated stochastic cash flows and zero operational synergies. These activities may be incorporated separately with their own debt/equity structures, or combined (merged) into a corporation with a single debt/equity structure. In a Modigliani - Miller (1958) setting, there will be no financial synergies and no gains to merging the activities. In the presence of corporate taxes and default costs, mergers can realize substantial positive financial synergies due to reduced risk and the potential for greater leverage, but at the cost of losing separate debt/equity choices and separate limited liability. Closed form measures of financial synergies of combining activities are developed, using the valuation and optimal capital structure model introduced by Leland (1994). Characteristics of activities that gain (or lose) from combination are identified. The results have direct application to the optimal scope of the firm, including the desirability of mergers, spinoffs, and off balance sheet finance. The effect of hedging opportunities on the optimal scope of the firm is also considered.

The process of asset securitization is a new and innovative financing method used for funding and risk management purposes. Evolved over the last few decades, securitization represents a substantial and established part of US and global capital markets. In addition to its importance as a financial and asset restructuring tool, securitization originated various streams of academic research. Different models have been developed in order to analyze the theoretical aspects of the process. But some important questions have remained unexplained. The established models don't address why the firm should securitize its assets. They don't investigate if securitization can be a viable alternative for the firm when it chooses its optimal corporate structure. We develop a model of the multi-asset firm which provides an answer to these questions. The model analyzes various corporate structures and validates asset securitization as one of the value maximizing options which can accomplish the optimal incorporation of the assets in the firm. In the framework of the model, the multi-asset firm can optimally choose between aggregating all the assets in one firm, securitizing a part of them through a securitization vehicle, or spinning them off into single-asset firms. For each structure, the debtholders and the equityholders choose the firm's optimal leverage ratio. The optimal asset and capital structure have an effect on the value of tax and non-debt bankruptcy claims. That phenomena leads to a potential increase in the overall value of the firm. For a specific set of the assets, securitization can be a preferred choice, because it avoids the costs associated with the standard bankruptcy procedure for the firm. The model provides a set of testable implications related to the optimal corporate and financial structure of the multi-asset firm and to the subsequent role of securitization.