The flip side of financial synergies: Coinsurance versus risk contamination

Albert Banal-Estanol, Marco Ottaviani, Andrew Winton

Research output: Contribution to journalArticlepeer-review

21 Scopus citations


This paper characterizes when joint financing of two projects through debt increases expected default costs, contrary to conventional wisdom. Separate financing dominates joint financing when risk-contamination losses-that are associated with the contagious default of a well-performing project that is dragged down by the other project's poor performance-outweigh standard coinsurance gains. Separate financing becomes more attractive than joint financing when the fraction of returns lost under default increases and when projects have lower mean returns, higher variability, more positive correlation, and more negative skewness. These predictions are broadly consistent with evidence on conglomerate mergers, spinoffs, project finance, and securitization.

Original languageEnglish (US)
Pages (from-to)3142-3181
Number of pages40
JournalReview of Financial Studies
Issue number12
StatePublished - Dec 1 2013

Bibliographical note

Publisher Copyright:
© 2013 © The Author 2013.


  • G32


Dive into the research topics of 'The flip side of financial synergies: Coinsurance versus risk contamination'. Together they form a unique fingerprint.

Cite this