This paper empirically examines what corporate governance, financial and transaction variables lead target companies to negotiate for reverse termination fees (RTFs) in mergers and acquisitions. RTFs, which must be paid by buyers if they walk away from a merger, are used by target companies to reduce transaction uncertainty. We examine 1518 merger agreements for the period from 2010 to 2019, and find that 44.86 percent of these transactions included RTFs. First, we find that larger and more mature target companies with higher market capitalizations and lower cash ratios are more likely to successfully negotiate for RTFs. Second, the presence of a controlling shareholder increases the size of an RTF and ensures it is “efficiently” priced, suggesting that these actors play a monitoring role. Third, targets with dual class stock are less likely to efficiently price RTFs. Finally, deals with private equity acquirers are more likely to feature RTFs, and these RTFs are larger and more efficiently priced. These findings have implications for practitioners involved in crafting deal protection mechanisms, as well as Delaware courts considering how to view RTF provisions in merger litigation.
{"title":"The Agency Costs of Sellside Deal Protection: An Empirical Analysis of Reverse Termination Fees","authors":"Dhruv Aggarwal","doi":"10.2139/ssrn.3559938","DOIUrl":"https://doi.org/10.2139/ssrn.3559938","url":null,"abstract":"This paper empirically examines what corporate governance, financial and transaction variables lead target companies to negotiate for reverse termination fees (RTFs) in mergers and acquisitions. RTFs, which must be paid by buyers if they walk away from a merger, are used by target companies to reduce transaction uncertainty. We examine 1518 merger agreements for the period from 2010 to 2019, and find that 44.86 percent of these transactions included RTFs. First, we find that larger and more mature target companies with higher market capitalizations and lower cash ratios are more likely to successfully negotiate for RTFs. Second, the presence of a controlling shareholder increases the size of an RTF and ensures it is “efficiently” priced, suggesting that these actors play a monitoring role. Third, targets with dual class stock are less likely to efficiently price RTFs. Finally, deals with private equity acquirers are more likely to feature RTFs, and these RTFs are larger and more efficiently priced. These findings have implications for practitioners involved in crafting deal protection mechanisms, as well as Delaware courts considering how to view RTF provisions in merger litigation.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76086471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Abdulmanova, Stephen P. Ferris, Narayanan Jayaraman, Pratik Kothari
We examine the effect of investor attention on value loss due to securities class action lawsuits and fraud discovery. We find that investor attention is positively associated with damage to corporate reputation and the magnitude of value losses suffered by the defendant firm. The reputational damages to the defendant firms with higher investor attention are evident from poor operational performance and lower institutional ownership post-filing. Investor attention is positively associated with the diffusion of information regarding fraud and also accelerates lawsuit filing. The effects of investor attention, however, are not subsumed by the severity of the fraud. Our results are robust to a battery of tests that addresses selection and endogeneity concerns.
{"title":"The Effect of Investor Attention on Fraud Discovery and Value Loss in Securities Class Action Litigation","authors":"A. Abdulmanova, Stephen P. Ferris, Narayanan Jayaraman, Pratik Kothari","doi":"10.2139/ssrn.3028224","DOIUrl":"https://doi.org/10.2139/ssrn.3028224","url":null,"abstract":"We examine the effect of investor attention on value loss due to securities class action lawsuits and fraud discovery. We find that investor attention is positively associated with damage to corporate reputation and the magnitude of value losses suffered by the defendant firm. The reputational damages to the defendant firms with higher investor attention are evident from poor operational performance and lower institutional ownership post-filing. Investor attention is positively associated with the diffusion of information regarding fraud and also accelerates lawsuit filing. The effects of investor attention, however, are not subsumed by the severity of the fraud. Our results are robust to a battery of tests that addresses selection and endogeneity concerns.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"100 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85927699","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the effect of SEC regulations on firm valuations and corporate policies over the past 50 years. I build a time-varying and industry-specific measure of SEC regulatory restrictions, based on the universe of effective SEC rules and machine-learning relevance of the regulations to each industry. My identification strategy uses a generalized difference-in-differences design, exploiting the staggered nature of large changes in SEC regulatory restrictions across industries. I find that firms increase their demand for compliance employees following increases in regulatory restrictions, suggesting heightened regulatory burdens. At the same time, the affected firms experience increases in valuation and operating performance. The effects are asymmetric, where regulations have stronger impacts than deregulations. The results are consistent with increased regulatory burdens pushing out weaker companies, which increases the market power of other firms. Following increases in SEC restrictions, underperforming firms are more likely to exit the market, leading to more concentrated industries.
{"title":"SEC Regulations and Firms","authors":"Xi Wu","doi":"10.2139/ssrn.3625115","DOIUrl":"https://doi.org/10.2139/ssrn.3625115","url":null,"abstract":"This study examines the effect of SEC regulations on firm valuations and corporate policies over the past 50 years. I build a time-varying and industry-specific measure of SEC regulatory restrictions, based on the universe of effective SEC rules and machine-learning relevance of the regulations to each industry. My identification strategy uses a generalized difference-in-differences design, exploiting the staggered nature of large changes in SEC regulatory restrictions across industries. I find that firms increase their demand for compliance employees following increases in regulatory restrictions, suggesting heightened regulatory burdens. At the same time, the affected firms experience increases in valuation and operating performance. The effects are asymmetric, where regulations have stronger impacts than deregulations. The results are consistent with increased regulatory burdens pushing out weaker companies, which increases the market power of other firms. Following increases in SEC restrictions, underperforming firms are more likely to exit the market, leading to more concentrated industries.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"38 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86413259","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the transmission of changes in bank capital requirements and supranational monetary policy, and their interaction effect, on euro area bank lending and lending rates. Our results show that - for weakly capitalized banks - increases in capital requirements are in the short-run associated with a decrease in the total of domestic and cross-border bank lending. In addition, we find that there is no similar effect of capital requirements for strongly capitalized banks. Furthermore, changes in the monetary policy stance are positively related to lending rates. Regarding the interacting effect of national capital requirements and supranational monetary policy, we observe that increases in capital requirements attenuate the general effects of monetary policy on interest rates. Overall, the transmission of an accommodating monetary policy to lending rates is attenuated by contemporaneous increases in bank capital requirements which additionally imply a transitory decrease of the loan growth of weakly capitalized banks.
{"title":"The Transmission of Bank Capital Requirements and Monetary Policy to Bank Lending","authors":"Björn Imbierowicz, Axel Loeffler, U. Vogel","doi":"10.1111/ROIE.12500","DOIUrl":"https://doi.org/10.1111/ROIE.12500","url":null,"abstract":"We investigate the transmission of changes in bank capital requirements and supranational monetary policy, and their interaction effect, on euro area bank lending and lending rates. Our results show that - for weakly capitalized banks - increases in capital requirements are in the short-run associated with a decrease in the total of domestic and cross-border bank lending. In addition, we find that there is no similar effect of capital requirements for strongly capitalized banks. Furthermore, changes in the monetary policy stance are positively related to lending rates. Regarding the interacting effect of national capital requirements and supranational monetary policy, we observe that increases in capital requirements attenuate the general effects of monetary policy on interest rates. Overall, the transmission of an accommodating monetary policy to lending rates is attenuated by contemporaneous increases in bank capital requirements which additionally imply a transitory decrease of the loan growth of weakly capitalized banks.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90337470","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the effect of the Dodd-Frank Act (“Dodd-Frank”) on the profits and risk-taking of the hedge fund industry. Dodd-Frank subjects most hedge funds to government inspections, requires them to register with the Securities and Exchange Commission (“SEC”), and imposes a number of disclosure and compliance obligations. According to the SEC and other authorities, these measures were intended to protect investors from misrepresentation of fund performance and increase the control of systemic risk; but the industry opposed the law, claiming that compliance costs would substantially affect the profitability of the industry and that the new obligations were unnecessary given the relatively sophisticated nature of hedge fund investors. The empirical evidence on the effect of Dodd Frank on profitability and risk-taking, however, is limited. This paper, therefore, contributes to filling this gap. The results show that, relative to a control group of funds that were already regulated or largely exempted from regulation, the newly regulated funds experienced a significant decrease in reported profits but not in risk (as proxied by volatility). The funds that became subject to the obligation to file Form PF (a new form created as part of the implementation of Dodd-Frank, which focuses on performance and volatility data) actually experienced a decrease in risk, but this result should only be interpreted as suggestive given some limitations of the data. In addition, the analysis suggests that the decline in reported profits among the newly regulated funds was not driven by compliance costs, as predicted by the industry. Rather, the results indicate that the decline can be reasonably attributed to greater conservativism in financial reporting. Taken together, the results contradict some commentators’ suggestion that the reduction in reported returns following Dodd-Frank represents a “partial government failure.”
{"title":"Hedge Fund Regulation, Performance, and Risk-Taking: Re-Examining the Effect of the Dodd-Frank Act","authors":"Fernán Restrepo","doi":"10.2139/ssrn.3541916","DOIUrl":"https://doi.org/10.2139/ssrn.3541916","url":null,"abstract":"This paper examines the effect of the Dodd-Frank Act (“Dodd-Frank”) on the profits and risk-taking of the hedge fund industry. Dodd-Frank subjects most hedge funds to government inspections, requires them to register with the Securities and Exchange Commission (“SEC”), and imposes a number of disclosure and compliance obligations. According to the SEC and other authorities, these measures were intended to protect investors from misrepresentation of fund performance and increase the control of systemic risk; but the industry opposed the law, claiming that compliance costs would substantially affect the profitability of the industry and that the new obligations were unnecessary given the relatively sophisticated nature of hedge fund investors. The empirical evidence on the effect of Dodd Frank on profitability and risk-taking, however, is limited. This paper, therefore, contributes to filling this gap. The results show that, relative to a control group of funds that were already regulated or largely exempted from regulation, the newly regulated funds experienced a significant decrease in reported profits but not in risk (as proxied by volatility). The funds that became subject to the obligation to file Form PF (a new form created as part of the implementation of Dodd-Frank, which focuses on performance and volatility data) actually experienced a decrease in risk, but this result should only be interpreted as suggestive given some limitations of the data. In addition, the analysis suggests that the decline in reported profits among the newly regulated funds was not driven by compliance costs, as predicted by the industry. Rather, the results indicate that the decline can be reasonably attributed to greater conservativism in financial reporting. Taken together, the results contradict some commentators’ suggestion that the reduction in reported returns following Dodd-Frank represents a “partial government failure.”","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"7 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83787648","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Darío Cestau, R. Green, Burton Hollifield, N. Schürhoff
Should legislation ban the negotiated sales of municipal bonds? What are the costs of forcing public auctions? We compare the offering yields of local governments that are forced by state law to use public auctions to the offering yields of local governments that can choose between auctions and negotiated sales. Using a sample of 369,482 school bonds issued between 2004 and 2014, we find that a restriction on negotiated sales has a negative cost instead of positive. The prohibition benefits issuers on average. The offering yields of constrained issuers are 17 basis points lower than the offering yields of unconstrained issuers. The effect is equivalent to a rating upgrade from non-rated to AA-. Nevertheless, most issuers prefer to use negotiated sales even if they do not maximize bond proceeds.
{"title":"Should State Governments Prohibit the Negotiated Sales of Municipal Bonds?","authors":"Darío Cestau, R. Green, Burton Hollifield, N. Schürhoff","doi":"10.2139/ssrn.3508342","DOIUrl":"https://doi.org/10.2139/ssrn.3508342","url":null,"abstract":"Should legislation ban the negotiated sales of municipal bonds? What are the costs of forcing public auctions? We compare the offering yields of local governments that are forced by state law to use public auctions to the offering yields of local governments that can choose between auctions and negotiated sales. Using a sample of 369,482 school bonds issued between 2004 and 2014, we find that a restriction on negotiated sales has a negative cost instead of positive. The prohibition benefits issuers on average. The offering yields of constrained issuers are 17 basis points lower than the offering yields of unconstrained issuers. The effect is equivalent to a rating upgrade from non-rated to AA-. Nevertheless, most issuers prefer to use negotiated sales even if they do not maximize bond proceeds.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"80 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82235867","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We examine whether firms exploit enforcement heterogeneity in response to a heightened risk of investigation by regional Securities and Exchange Commission (SEC) enforcement offices. We find that firms facing high SEC scrutiny risks are more likely to relocate outside the jurisdiction of the SEC regional office. The likelihood of out-of-SEC relocation becomes at least two times higher after exogenous shocks to local SEC enforcement. High scrutiny-risk firms tend to migrate to regions with weaker SEC enforcement history and regions with more peers engaging in misbehavior. Scrutiny shopping is more salient for firms with lower costs of relocation.
{"title":"SEC Scrutiny Shopping","authors":"Paul Calluzzo, Wen Wang, S. Wu","doi":"10.2139/ssrn.2627760","DOIUrl":"https://doi.org/10.2139/ssrn.2627760","url":null,"abstract":"Abstract We examine whether firms exploit enforcement heterogeneity in response to a heightened risk of investigation by regional Securities and Exchange Commission (SEC) enforcement offices. We find that firms facing high SEC scrutiny risks are more likely to relocate outside the jurisdiction of the SEC regional office. The likelihood of out-of-SEC relocation becomes at least two times higher after exogenous shocks to local SEC enforcement. High scrutiny-risk firms tend to migrate to regions with weaker SEC enforcement history and regions with more peers engaging in misbehavior. Scrutiny shopping is more salient for firms with lower costs of relocation.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"25 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87024420","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A poor ethical culture has been considered one of the reasons for the emergence of many corporate governance scandals. In this paper, I investigate the link between two corporate governance mechanisms – the composition of the board of directors and ownership structure – and ethical culture for a sample of Brazilian companies. My measure of ethical culture is based on a text analysis of around 50,000 employee reviews posted at Glassdoor for around 1,400 terms associated with five ethical dimensions: organizational trust, ethical leadership, benevolent orientation, empathy, and speaking out & efficacy. I find partial support, though far from conclusive, for the hypotheses that a higher ratio of independent directors or of women on boards is associated with better ethical culture. My clearest results refer to a corporate governance feature little discussed in the literature: the percentage of directors appointed by minority shareholders. In this case, all specifications show a strong negative relationship between the percentage of such directors and ethical culture. As minority directors are usually appointed by institutional investors, one conjecture is that the short-term horizon of some institutional investors could lead these directors to prioritize short-term profits instead of focusing on building an ethical culture whose benefits would be mostly reaped over the longer term. Other variables related to the board of directors and ownership structure, such as ownership concentration and the identity of the shareholder of reference, were not significant in explaining ethical culture. To my knowledge, this is the first paper to document a link between ethical culture and corporate governance mechanisms.
{"title":"Corporate Governance and Ethical Culture: Do Boards of Directors and Ownership Structure Mattter?","authors":"Alexandre Di Miceli da Silveira","doi":"10.2139/ssrn.3488061","DOIUrl":"https://doi.org/10.2139/ssrn.3488061","url":null,"abstract":"A poor ethical culture has been considered one of the reasons for the emergence of many corporate governance scandals. In this paper, I investigate the link between two corporate governance mechanisms – the composition of the board of directors and ownership structure – and ethical culture for a sample of Brazilian companies. My measure of ethical culture is based on a text analysis of around 50,000 employee reviews posted at Glassdoor for around 1,400 terms associated with five ethical dimensions: organizational trust, ethical leadership, benevolent orientation, empathy, and speaking out & efficacy. I find partial support, though far from conclusive, for the hypotheses that a higher ratio of independent directors or of women on boards is associated with better ethical culture. My clearest results refer to a corporate governance feature little discussed in the literature: the percentage of directors appointed by minority shareholders. In this case, all specifications show a strong negative relationship between the percentage of such directors and ethical culture. As minority directors are usually appointed by institutional investors, one conjecture is that the short-term horizon of some institutional investors could lead these directors to prioritize short-term profits instead of focusing on building an ethical culture whose benefits would be mostly reaped over the longer term. Other variables related to the board of directors and ownership structure, such as ownership concentration and the identity of the shareholder of reference, were not significant in explaining ethical culture. To my knowledge, this is the first paper to document a link between ethical culture and corporate governance mechanisms.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"289 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-11-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79420482","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Short sell bans are often imposed during a financial crisis as a desperate measure to stabilize financial markets. Yet, the impact of short sell bans on option pricing and hedging is not well quantitatively studied until very recently when Guo and Zhu (2017) and He and Zhu (2018) formulated a new pricing framework with the underlying being either completely or partially banned from short selling. However, no empirical results were provided to substantiate the usefulness of the formulae, as well as to deepen our understanding on the effects of short sell bans. This paper provides a comprehensive empirical study on the effects of short sell bans to the standard option pricing theory by carrying out both cross-sectional and options time series model calibration of the model devised by He and Zhu (2018). Overall, our empirical results indicate that the alternative option pricing formula considering short sell restrictions has the ability to capture highly-quoted implied volatility, with an evident improvement of 39% out-of-sample performance compared to the benchmark Black-Scholes model during the period of short sell ban.
{"title":"An Empirical Study of the Option Pricing Formula with the Underlying Banned from Short Sell","authors":"Mesias Alfeus, Xin‐Jiang He, Song‐Ping Zhu","doi":"10.2139/ssrn.3478355","DOIUrl":"https://doi.org/10.2139/ssrn.3478355","url":null,"abstract":"Short sell bans are often imposed during a financial crisis as a desperate measure to stabilize financial markets. Yet, the impact of short sell bans on option pricing and hedging is not well quantitatively studied until very recently when Guo and Zhu (2017) and He and Zhu (2018) formulated a new pricing framework with the underlying being either completely or partially banned from short selling. However, no empirical results were provided to substantiate the usefulness of the formulae, as well as to deepen our understanding on the effects of short sell bans. This paper provides a comprehensive empirical study on the effects of short sell bans to the standard option pricing theory by carrying out both cross-sectional and options time series model calibration of the model devised by He and Zhu (2018). Overall, our empirical results indicate that the alternative option pricing formula considering short sell restrictions has the ability to capture highly-quoted implied volatility, with an evident improvement of 39% out-of-sample performance compared to the benchmark Black-Scholes model during the period of short sell ban.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"29 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81251264","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Yongqiang Chu, Ha Diep-Nguyen, Jun Wang, Wei Wang, Wenyu Wang
Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000-2014, we find that firms with financial institutions’ debt-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are over-secured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to establish causality. Firms with simultaneous holdings experience higher stock returns and are not more likely to reenter into financial distress. The evidence suggests that the mitigation of shareholder-creditor conflicts results in cost-effective resolutions of financial distress.
{"title":"Simultaneous Debt-Equity Holdings and The Resolution of Financial Distress","authors":"Yongqiang Chu, Ha Diep-Nguyen, Jun Wang, Wei Wang, Wenyu Wang","doi":"10.2139/ssrn.3216923","DOIUrl":"https://doi.org/10.2139/ssrn.3216923","url":null,"abstract":"Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000-2014, we find that firms with financial institutions’ debt-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger when loans are over-secured and when the expected bankruptcy costs are larger. We use mergers of financial institutions and instrumental variable estimations to establish causality. Firms with simultaneous holdings experience higher stock returns and are not more likely to reenter into financial distress. The evidence suggests that the mitigation of shareholder-creditor conflicts results in cost-effective resolutions of financial distress.","PeriodicalId":10698,"journal":{"name":"Corporate Law: Law & Finance eJournal","volume":"76 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79281101","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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