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Does shareholder coordination matter? Evidence from private placements

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  • Chakraborty, Indraneel
  • Gantchev, Nickolay

Abstract

We propose a new role for private investments in public equity (PIPEs) as a mechanism to reduce coordination frictions among existing equity holders. We establish a causal link between the coordination ability of incumbent shareholders and PIPE issuance. This result obtains even after controlling for alternative explanations such as information asymmetry and access to public markets. Improved equity coordination following a private placement leads to favorable debt renegotiations within one year of issuance. Mitigating coordination frictions among shareholders ultimately decreases the odds of firm default in half.

Suggested Citation

  • Chakraborty, Indraneel & Gantchev, Nickolay, 2013. "Does shareholder coordination matter? Evidence from private placements," Journal of Financial Economics, Elsevier, vol. 108(1), pages 213-230.
    • Handle: RePEc:eee:jfinec:v:108:y:2013:i:1:p:213-230
    DOI: 10.1016/j.jfineco.2012.10.001
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    More about this item

    Keywords

    Private placements; Equity issuance; Shareholder coordination; Debt renegotiation; Firm distress;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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