Corporate finance program meeting.

• Position: Conference held on November 20, 1998

Members of the NBER's Program on Corporate Finance met on November 20 in Cambridge. At the meeting, organized by Program Director Raghuram Rajan of the following papers were discussed"

Randall S. Krozner, NBER and University of Chicago, "Is It Better to Forgive Than to Receive? Repudiation of the Gold Indexation Clause in Long-Term Debt During the Great Depression"

Discussant: Stewart C. Myers, NBER and MIT

Tarun Khanna and Krishna Palepu, Harvard University, "The Future of Business Groups in Emerging Markets: Long-Run Evidence from Chile"

Discussant: Andrei Shleifer, NBER anti Harvard University

Douglas Diamond, University of Chicago, anti Raghuram Rajan, "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking"

Discussant: Patrick Bolton, Princeton University

Peter Boone, Brunswick Warburg; Alasdair Breach, Russian-European Centre for Economic Policy; Eric Friedman, Rutgers University; and Simon Johnson, MIT, "Corporate Governance in the Asian Financial Crisis, 1997-8"

Discussant: Luigi Zingales, NBER and University of Chicago

Malcolm Baker, Harvard University, and Paul Gompers, NBER and Harvard University, "How You Get There Matters: The Path Dependency of Corporate Governance in Closely Held Firms"

Discussant: Per Stromberg, University of Chicago

Kroszner examines the consequences of large-scale debt relief during the Great Depression. When the United States went off the gold standard and devalued the dollar with respect to gold, the government declared that the courts would no longer enforce gold indexation clauses which had been part of virtually all long-term private and public debt contracts up to that time. If the gold clauses had been enforced, the debt burden of borrowers would have increased by the extent of the devaluation, 69 percent. In response to the Supreme Court's decision to uphold this effective "debt jubilee," equity prices rose. But, more surprisingly, the prices of corporate bonds (all of which contained gold clauses) also rose. In contrast, the value of government bonds with gold clauses fell. This suggests that the benefits for private firms of eliminating debt overhang and avoiding bankruptcy more than offset the loss to creditors of some chance of trying to recover the additional 69 percent. Further, the stock and bond prices of firms closer to bankruptcy rose more than those prices for other firms.

In a study of Chile during 1988-96, Khanna and Palepu demonstrate that the extent to which...