This paper will examine the ways in which parent companies within corporate groups can be held liable by means of common law doctrines and statutory principles. Where a subsidiary company within a corporate group becomes insolvent and is unable to pay its creditors in full, the principles of separate legal personality and limited liability mean that a parent company will not normally be held liable. What will be explored further are the circumstances in which these default principles of corporate separateness can be ignored and liability be extended beyond the insolvent subsidiary to the solvent corporate shareholder. The support for enhanced liability is clear and represents an uncommon convergence of opinion and outcomes in corporate law scholarship. It is suggested that a complete reimagination of limited liability is not necessary. Rather, what is necessary is a modification of the current rules governing liability regarding involuntary creditors. This should be viewed as a mere readjustment to the relationship between companies and their tort victims, as opposed to a completely new form of liability.
{"title":"The Cathedral and the Haystack: One View of Limited Liability and Corporate Groups","authors":"A. Graham","doi":"10.2139/ssrn.3651546","DOIUrl":"https://doi.org/10.2139/ssrn.3651546","url":null,"abstract":"This paper will examine the ways in which parent companies within corporate groups can be held liable by means of common law doctrines and statutory principles. Where a subsidiary company within a corporate group becomes insolvent and is unable to pay its creditors in full, the principles of separate legal personality and limited liability mean that a parent company will not normally be held liable. What will be explored further are the circumstances in which these default principles of corporate separateness can be ignored and liability be extended beyond the insolvent subsidiary to the solvent corporate shareholder. The support for enhanced liability is clear and represents an uncommon convergence of opinion and outcomes in corporate law scholarship. It is suggested that a complete reimagination of limited liability is not necessary. Rather, what is necessary is a modification of the current rules governing liability regarding involuntary creditors. This should be viewed as a mere readjustment to the relationship between companies and their tort victims, as opposed to a completely new form of liability.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"61 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79956645","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ivo Waisberg, Marcelo Sacramone, Marcelo Guedes Nunes, F. Corrêa
The Insolvency Monitor is a pioneer initiative from the Núcleo de Estudos de Processos de Insolvência - NEPI (Research Center of Insolvency Proceedings) of PUCSP (the Catholic University of São Paulo) and the Associação Brasileira de Jurimetria – ABJ (Brazilian Association of Jurimetrics). Its goals are to collect and analyze data in relation to distressed businesses that apply to the Courts for restructuring purposes or, as a last resort, for liquidation.
破产监测是圣保罗天主教大学(PUCSP)的Núcleo de Estudos de Processos de Insolvência - NEPI(破产程序研究中心)和巴西法律计量协会(associa o Brasileira de Jurimetria - ABJ)的一项开创性倡议。其目标是收集和分析与向法院申请重组或作为最后手段进行清算的陷入困境的企业有关的数据。
{"title":"Judicial Restructuring in the Courts of São Paulo","authors":"Ivo Waisberg, Marcelo Sacramone, Marcelo Guedes Nunes, F. Corrêa","doi":"10.2139/ssrn.3299601","DOIUrl":"https://doi.org/10.2139/ssrn.3299601","url":null,"abstract":"The Insolvency Monitor is a pioneer initiative from the Núcleo de Estudos de Processos de Insolvência - NEPI (Research Center of Insolvency Proceedings) of PUCSP (the Catholic University of São Paulo) and the Associação Brasileira de Jurimetria – ABJ (Brazilian Association of Jurimetrics). Its goals are to collect and analyze data in relation to distressed businesses that apply to the Courts for restructuring purposes or, as a last resort, for liquidation.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77099444","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In its reform of the U.S. Bankruptcy Code, the American Bankruptcy Institute (ABI) is proposing to grant a redemption option to junior creditors and let them exit the bargaining process. A game-theoretic, continuous-time model of the leveraged firm under Chapter 11 is developed to assess the wealth transfers and welfare impacts of such an amendment. After fitting the model to the current outcomes of Chapter 11, numerical experiments show that junior creditors are overcompensated and that the redemption option replaces one type of Absolute Priority Rule violations with another. Importantly, the redemption option aligns junior creditors' interests with those of shareholders, thereby increasing the incentives for risk-shifting. While the ABI reform reduces bankruptcy costs, it also increases the risk of liquidation.
{"title":"Could Chapter 11 Redeem Itself? Wealth and Welfare Effects of the Redemption Option","authors":"Amira Annabi, M. Breton, Pascal François","doi":"10.2139/ssrn.3281346","DOIUrl":"https://doi.org/10.2139/ssrn.3281346","url":null,"abstract":"In its reform of the U.S. Bankruptcy Code, the American Bankruptcy Institute (ABI) is proposing to grant a redemption option to junior creditors and let them exit the bargaining process. A game-theoretic, continuous-time model of the leveraged firm under Chapter 11 is developed to assess the wealth transfers and welfare impacts of such an amendment. After fitting the model to the current outcomes of Chapter 11, numerical experiments show that junior creditors are overcompensated and that the redemption option replaces one type of Absolute Priority Rule violations with another. Importantly, the redemption option aligns junior creditors' interests with those of shareholders, thereby increasing the incentives for risk-shifting. While the ABI reform reduces bankruptcy costs, it also increases the risk of liquidation.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"24 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81146194","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is no secret in the bankruptcy community that creditors hate so-called “preference” actions, which permit a debtor to recover payments made to creditors on the eve of bankruptcy for the benefit of the estate. This resentment is particularly palpable among trade creditors, which tend to be unsecured businesses providing the debtor goods and services on credit terms. Nominally, preference actions are intended to equalize the extent to which each unsecured creditor must bear the loss of a bankruptcy discharge, or to discourage creditors from rushing to collect from the debtor in such a way that will push an insolvent debtor into bankruptcy. But empirical evidence strongly suggests that, at least in chapter 11 reorganization proceedings, preference actions do not fulfill either of these stated goals. Interviews with debtors, trade creditors, and attorneys involved in small-and medium-sized chapter 11 bankruptcy cases establish both that creditors are not deterred from collecting by preference actions, and that preference actions are not applied equally in a system where debtors are able to choose which preferential transfers to avoid and how much to accept in settlement of preference actions. Instead, these interviews suggest an alternative justification for preference law in chapter 11, one more consistent with promoting a debtor’s ability to exercise strategic leverage over its creditors in an effort to reorganize. In this way, the law of preference avoidance is actually one of preference perpetuation, in the interest of preserving valuable relationships within bankruptcy proceedings.
{"title":"Relational Preferences in Chapter 11 Proceedings","authors":"Brook E. Gotberg","doi":"10.2139/SSRN.3224683","DOIUrl":"https://doi.org/10.2139/SSRN.3224683","url":null,"abstract":"It is no secret in the bankruptcy community that creditors hate so-called “preference” actions, which permit a debtor to recover payments made to creditors on the eve of bankruptcy for the benefit of the estate. This resentment is particularly palpable among trade creditors, which tend to be unsecured businesses providing the debtor goods and services on credit terms. Nominally, preference actions are intended to equalize the extent to which each unsecured creditor must bear the loss of a bankruptcy discharge, or to discourage creditors from rushing to collect from the debtor in such a way that will push an insolvent debtor into bankruptcy. But empirical evidence strongly suggests that, at least in chapter 11 reorganization proceedings, preference actions do not fulfill either of these stated goals. Interviews with debtors, trade creditors, and attorneys involved in small-and medium-sized chapter 11 bankruptcy cases establish both that creditors are not deterred from collecting by preference actions, and that preference actions are not applied equally in a system where debtors are able to choose which preferential transfers to avoid and how much to accept in settlement of preference actions. Instead, these interviews suggest an alternative justification for preference law in chapter 11, one more consistent with promoting a debtor’s ability to exercise strategic leverage over its creditors in an effort to reorganize. In this way, the law of preference avoidance is actually one of preference perpetuation, in the interest of preserving valuable relationships within bankruptcy proceedings.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"32 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77336854","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pre-packaged reorganization (prepack) takes ex ante better firms through a shorter and less costly bankruptcy procedure compared to traditional Chapter 11 but leads to more refiling. To explain this phenomenon, we propose an information acquisition model where creditors trade higher bankruptcy costs under traditional reorganization with higher accuracy in filtering inefficient from efficient firms. The prepack decision is governed by the value of the signal that a firm can acquire under traditional Chapter 11. Empirically, firms with better information and higher downside risks choose traditional reorganization. These firms subsequently have a lower rate of emergence but a higher survival rate.
{"title":"Patience Is a Virtue: Evidence from Insolvency","authors":"Guangqian Pan","doi":"10.2139/ssrn.3242648","DOIUrl":"https://doi.org/10.2139/ssrn.3242648","url":null,"abstract":"Pre-packaged reorganization (prepack) takes ex ante better firms through a shorter and less costly bankruptcy procedure compared to traditional Chapter 11 but leads to more refiling. To explain this phenomenon, we propose an information acquisition model where creditors trade higher bankruptcy costs under traditional reorganization with higher accuracy in filtering inefficient from efficient firms. The prepack decision is governed by the value of the signal that a firm can acquire under traditional Chapter 11. Empirically, firms with better information and higher downside risks choose traditional reorganization. These firms subsequently have a lower rate of emergence but a higher survival rate.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"52 362 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83739058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Empty creditors—bondholders hedged with Credit Default Swaps (CDSs)—face incentives to holdout from “Distressed Exchanges” (DEs) of debt because the CDS hedge alters their payoffs to favor bankruptcy. We show using detailed data on DEs that firms respond to this holdout problem by targeting junior bondholders who are more likely to tender than senior bondholders. Furthermore, we show that doing so allows them to successfully reduce debt through the DE and avoid bankruptcy. Our evidence underscores the importance of the firm's response to the holdout problem in understanding the role of empty creditors in distress resolution.
{"title":"How Do Firms Respond to Empty Creditor Holdout in Distressed Exchanges?","authors":"Rajesh P. Narayanan, Cihan Uzmanoglu","doi":"10.2139/ssrn.2024374","DOIUrl":"https://doi.org/10.2139/ssrn.2024374","url":null,"abstract":"Empty creditors—bondholders hedged with Credit Default Swaps (CDSs)—face incentives to holdout from “Distressed Exchanges” (DEs) of debt because the CDS hedge alters their payoffs to favor bankruptcy. We show using detailed data on DEs that firms respond to this holdout problem by targeting junior bondholders who are more likely to tender than senior bondholders. Furthermore, we show that doing so allows them to successfully reduce debt through the DE and avoid bankruptcy. Our evidence underscores the importance of the firm's response to the holdout problem in understanding the role of empty creditors in distress resolution.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"84 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79809320","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The past few weeks have seen a step-up in creditor efforts to pursue court judgments and judicial execution on the assets of Petroleos de Venezuela, S.A. (“PDVSA”). Within days of obtaining a $2 billion arbitral award against PDVSA and two subsidiaries, ConocoPhillips Co. initiated enforcement proceedings against PDVSA operating assets in the Netherlands Antilles, and initially obtained various court-ordered attachments there. In the United States, Crystallex should receive a decision by June 30, 2018 whether PDVSA is the alter ego of the Republic, possibly permitting it to enforce its $1.4 billion judgment against PDVSA’s assets in the United States. Further, at least one commercial creditor of PDVSA has reportedly been the first to sue in New York seeking a judgment on a defaulted promissory note, perhaps foreshadowing similar actions by holders of defaulted PDVSA and Republic bonds. This article first summarizes the magnitude of the claims against PDVSA and the Republic – both those that have been reduced to arbitral awards or judgments and are in various stages of enforcement proceedings, as well as the much larger pool of additional claims that are not (yet) in litigation but could become the subject of judicial proceedings. Next, we provide an update on the pending enforcement proceedings in the United States and elsewhere and the possible ramifications of those proceedings directly for the creditors involved and indirectly for those other PDVSA and Republic creditors watching from the sidelines. The third section provides a report on the status of litigation in Florida brought by a Trust purportedly formed on PDVSA’s behalf which is suing to recover billions of dollars in damages allegedly caused to PDVSA by a decade-long bid rigging and bribery scheme. Finally, the article discusses the implications of the litigation and political news of the last few weeks – including the purported re-election of Nicolas Maduro for another term and the possibility of escalating U.S. government sanctions – for Republic and PDVSA bondholders and other financial creditors who have not initiated any legal actions, but who may decide to do so in the near future.
{"title":"Start Your Engines: Are We Going to See More Creditor Recovery Efforts in Venezuela?","authors":"Richard Cooper, Boaz S. Morag","doi":"10.2139/SSRN.3186831","DOIUrl":"https://doi.org/10.2139/SSRN.3186831","url":null,"abstract":"The past few weeks have seen a step-up in creditor efforts to pursue court judgments and judicial execution on the assets of Petroleos de Venezuela, S.A. (“PDVSA”). Within days of obtaining a $2 billion arbitral award against PDVSA and two subsidiaries, ConocoPhillips Co. initiated enforcement proceedings against PDVSA operating assets in the Netherlands Antilles, and initially obtained various court-ordered attachments there. In the United States, Crystallex should receive a decision by June 30, 2018 whether PDVSA is the alter ego of the Republic, possibly permitting it to enforce its $1.4 billion judgment against PDVSA’s assets in the United States. Further, at least one commercial creditor of PDVSA has reportedly been the first to sue in New York seeking a judgment on a defaulted promissory note, perhaps foreshadowing similar actions by holders of defaulted PDVSA and Republic bonds. \u0000This article first summarizes the magnitude of the claims against PDVSA and the Republic – both those that have been reduced to arbitral awards or judgments and are in various stages of enforcement proceedings, as well as the much larger pool of additional claims that are not (yet) in litigation but could become the subject of judicial proceedings. Next, we provide an update on the pending enforcement proceedings in the United States and elsewhere and the possible ramifications of those proceedings directly for the creditors involved and indirectly for those other PDVSA and Republic creditors watching from the sidelines. The third section provides a report on the status of litigation in Florida brought by a Trust purportedly formed on PDVSA’s behalf which is suing to recover billions of dollars in damages allegedly caused to PDVSA by a decade-long bid rigging and bribery scheme. Finally, the article discusses the implications of the litigation and political news of the last few weeks – including the purported re-election of Nicolas Maduro for another term and the possibility of escalating U.S. government sanctions – for Republic and PDVSA bondholders and other financial creditors who have not initiated any legal actions, but who may decide to do so in the near future.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"47 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-05-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78368299","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dalié Jiménez, M. Bruckner, Pamela Foohey, Brook E. Gotberg, Chrystin D. Ondersma
This is a response to the Department of Education's request for information regarding evaluating undue hardship claims in adversary actions seeking student loan discharge in bankruptcy proceedings. Although by law student loan borrowers may receive a discharge of their student loans when repayment would constitute an “undue hardship,” in practice many borrowers who would qualify for such a discharge in bankruptcy do not receive it. This proposal recommends changes to the Department of Education’s (the “Department”) policies and regulations that govern federal loan guarantors and loan servicers. The proposal would facilitate the appropriate discharge of student loans by establishing ten categories of borrower circumstances under which the Department would agree to the borrower’s discharge of federal student loans. The aim of the proposal is to establish clear, easy-to-verify, dire circumstances that merit the Department’s acquiescence to a student loan discharge and thereby promote the efficient use of taxpayer funds. Taxpayer funds should not be used to challenge a debtor’s discharge of her student loans where undue hardship is clearly present, or where the costs to fight a discharge are disproportionate to the likely recovery.
{"title":"Comments of Academics to Department of Education's RFI Regarding Evaluating Undue Hardship Claims in Adversary Actions Seeking Student Loan Discharge in Bankruptcy Proceedings (Docket No. Ed–2017–Ope–0085)","authors":"Dalié Jiménez, M. Bruckner, Pamela Foohey, Brook E. Gotberg, Chrystin D. Ondersma","doi":"10.2139/SSRN.3183893","DOIUrl":"https://doi.org/10.2139/SSRN.3183893","url":null,"abstract":"This is a response to the Department of Education's request for information regarding evaluating undue hardship claims in adversary actions seeking student loan discharge in bankruptcy proceedings. \u0000Although by law student loan borrowers may receive a discharge of their student loans when repayment would constitute an “undue hardship,” in practice many borrowers who would qualify for such a discharge in bankruptcy do not receive it. This proposal recommends changes to the Department of Education’s (the “Department”) policies and regulations that govern federal loan guarantors and loan servicers. The proposal would facilitate the appropriate discharge of student loans by establishing ten categories of borrower circumstances under which the Department would agree to the borrower’s discharge of federal student loans. The aim of the proposal is to establish clear, easy-to-verify, dire circumstances that merit the Department’s acquiescence to a student loan discharge and thereby promote the efficient use of taxpayer funds. Taxpayer funds should not be used to challenge a debtor’s discharge of her student loans where undue hardship is clearly present, or where the costs to fight a discharge are disproportionate to the likely recovery.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"56 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88688763","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Aditya Mitra, Andrés Ortiz, Bernard Botchway, Evaristo Pereira, Shane O'Neill, W. Curtis
This proposal offers a unique solution for a unique challenge: using oil to pay for Venezuela’s debt. Venezuela and PDVSA’s creditors currently receive little in the way of coupon payments and have minimal means of recourse over limited assets located outside Venezuela’s borders. We suggest using a creditor trust to consolidate creditors into a single entity that would purchase the oil from Venezuela with bonds tendered by the creditors to the trust. This transaction would give the creditors trust a priority claim over oil as title holders. It allows a restructuring process with relatively few changes to current bonds, thus reducing the possibility of litigation. In addition to the legal and structural benefits offered to both Venezuela and the creditors, this proposal offers something that no other proposal does — the potential for successful execution under current U.S. sanctions based on the issuance of a specific license from OFAC. Although there is no assurance as to whether such license would be obtained, it is arguable that this structure runs outside the scope of the Executive Order No. 13,808, and that there is precedent supporting the issuance of such a license authorizing commercial transactions.
{"title":"Oil for Debt: A Unique Proposal for the Unique Challenge that is Restructuring Venezuela's Debt","authors":"Aditya Mitra, Andrés Ortiz, Bernard Botchway, Evaristo Pereira, Shane O'Neill, W. Curtis","doi":"10.2139/SSRN.3159462","DOIUrl":"https://doi.org/10.2139/SSRN.3159462","url":null,"abstract":"This proposal offers a unique solution for a unique challenge: using oil to pay for Venezuela’s debt. Venezuela and PDVSA’s creditors currently receive little in the way of coupon payments and have minimal means of recourse over limited assets located outside Venezuela’s borders. We suggest using a creditor trust to consolidate creditors into a single entity that would purchase the oil from Venezuela with bonds tendered by the creditors to the trust. This transaction would give the creditors trust a priority claim over oil as title holders. It allows a restructuring process with relatively few changes to current bonds, thus reducing the possibility of litigation. In addition to the legal and structural benefits offered to both Venezuela and the creditors, this proposal offers something that no other proposal does — the potential for successful execution under current U.S. sanctions based on the issuance of a specific license from OFAC. Although there is no assurance as to whether such license would be obtained, it is arguable that this structure runs outside the scope of the Executive Order No. 13,808, and that there is precedent supporting the issuance of such a license authorizing commercial transactions.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"24 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-04-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72805487","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Controlling shareholders often pledge their ownership in the firm to offer collateral for either their personal loans or loans to the firm. Pledging of shares modifies their payoff structure, without altering their control rights. This modification in the payoff structure can influence the incentives of controlling shareholders and have real effects on firm value and performance. Using data from India, the study finds that share pledges for personal loans reduce the effective ownership of controlling shareholders and destroy firm value. On the contrary, share pledges for firm loans mitigate problems of limited pledgeability of cashflows and may increase the value of firms.
{"title":"Does Pledging of Shares by Controlling Shareholders Always Destroy Firm Value?","authors":"Pranav Pratap Singh","doi":"10.2139/ssrn.2989818","DOIUrl":"https://doi.org/10.2139/ssrn.2989818","url":null,"abstract":"Controlling shareholders often pledge their ownership in the firm to offer collateral for either their personal loans or loans to the firm. Pledging of shares modifies their payoff structure, without altering their control rights. This modification in the payoff structure can influence the incentives of controlling shareholders and have real effects on firm value and performance. Using data from India, the study finds that share pledges for personal loans reduce the effective ownership of controlling shareholders and destroy firm value. On the contrary, share pledges for firm loans mitigate problems of limited pledgeability of cashflows and may increase the value of firms.","PeriodicalId":44862,"journal":{"name":"American Bankruptcy Law Journal","volume":"52 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84715325","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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