The Advantage of Being the First To Fail

October 24, 2012

Sean Kensil (BSBA’12) and Kaitlin Margraf (BSBA ’12) from Georgetown University’s McDonough School of Business recently had a research paper titled “The Advantage of Failing First: Bear Stearns v. Lehman Brothers” published in the Journal of Applied Finance.

Kensil and Margraf, undergraduates of Georgetown McDonough when they conducted the research, were under guidance from David A. Walker, professor of finance at Georgetown McDonough. Their research examined why Lehman Brothers was forced into bankruptcy while Bear Stearns received a government bailout. They argue that even if Bear Stearns was in a worse condition than Lehman Brothers, it was their advantage of being the first to fail that led to receiving a government bailout. Lehman’s failure was caused more by unfortunate timing and the government’s desire to discourage the spread of moral hazard.

-- Joan Lim