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Corporate Reorganizations and Non-Cash Auctions

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Author Info
Matthew Rhodes-Kropf (Graduate School of Business, Columbia University, New York,)
S. Viswanathan (Fuqua School of Business, Duke University, North Carolina)

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Abstract

This paper extends the theory of non-cash auctions by considering the revenue and efficiency of using different securities. Research on bankruptcy and privatization suggests using non-cash auctions to increase cash-constrained bidder participation. We examine this proposal and demonstrate that securities may lead to higher revenue. However, bidders pool unless bids include debt,which results in possible repossession by the seller. This suggests all-equity outcomes are unlikely and explains the high debt of reorganized firms. Securities also inefficiently determine bidders' incentive contracts and the firm's capital structure. Therefore, we recommend a new cash auction for an incentive contract. Copyright The American Finance Association 2000.

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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 55 (2000)
Issue (Month): 4 (08)
Pages: 1807-1854
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Handle: RePEc:bla:jfinan:v:55:y:2000:i:4:p:1807-1854

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  1. Jose E. Quintero Jaramillo, 2004. "Liquidity Constraints And Credit Subsidies In Auctions," Business Economics Working Papers wb040604, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  2. Cornelli, Francesca & Felli, Leonhard, 2000. "How to Sell a (Bankrupt) Company," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Sandro Brusco & Giuseppe Lopomo & S Viswanathan, 2004. "Merger Mechanisms," Levine's Bibliography 122247000000000379, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Hege, Ulrich & Lovo, Stefano & Slovin, Myron & Sushka, Marie, 2006. "Equity and cash in intercorporate asset sales : theory and evidence," Les Cahiers de Recherche 859, HEC Paris. [Downloadable!]
    Other versions:
  5. Paul Povel & Rajdeep Singh, 2003. "Bidder Asymmetry in Takeover Contests: The Role of Deal Protection Devices," Finance 0311011, EconWPA. [Downloadable!]
  6. Bebchuk, Lucian Arye, 2001. "Ex Ante Costs of Violating Absolute Priority in Bankruptcy," CEPR Discussion Papers 2914, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Kenneth Ayotte & Hayong Yun, . "Matching Bankruptcy Laws to Legal Environments," American Law & Economics Association Annual Meetings 1018, American Law & Economics Association. [Downloadable!]
  8. Peter M. DeMarzo & Ilan Kremer & Andrzej Skrzypacz, 2004. "Bidding With Securities: Auctions and Security Design," NBER Working Papers 10891, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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