Bankruptcy, boards, banks, and blockholders

Gilson, Stuart C.

doi:10.1016/0304-405x(90)90060-d

Cited by 927 publications

(292 citation statements)

References 18 publications

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“…Brown et al (1994) present evidence that asset sales by distressed firms reflect pressure from short-term creditors, and that, in contrast with asset sales by healthy firms, they benefit creditors and hurt shareholders. Finally, debt restructuring can also lead to a reallocation of control powers within the firm (Gilson, 1990). In this case the resolution of financial distress has potential effects on agency problems between management and shareholders, and the going concern value of the firm depends on how control rights are redistributed in the workout.…”

Section: Discussionmentioning

confidence: 99%

Debt Restructuring with Multiple Creditors and the Role of Exchange Offers

Detragiache

Garella

1996

Journal of Financial Intermediation

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Exploiting the analogy with the private provision of a public good, this paper studies debt restructuring with an arbitrary number of creditors using mechanism design. Creditors differ in the value they expect to receive in bankruptcy, and this value is private information. As with public goods, too little debt forgiveness is granted in equilibrium relative to the first best. Creditors are more willing to make concessions under common values than under pure private values, an opposite phenomenon to the ''winners' curse'' in auctions. Exchange offers are an optimal restructuring scheme for the debtor, because they allow creditors to contribute to debt forgiveness at different levels. Journal of Economic Literature Classification Numbers: G34, G33.

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Section: Discussionmentioning

confidence: 99%

Debt Restructuring with Multiple Creditors and the Role of Exchange Offers

Detragiache

Garella

1996

Journal of Financial Intermediation

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“…During the process of private debt restructuring in an effort to avoid bankruptcy it is common to replace the CEO and members of the board. As compared to the situation in poorly performing firms which are not in default or filing for Chapter 11, management turnover rates are much lower (Gilson, 1989(Gilson, , 1990.…”

Section: Corporate Governancementioning

confidence: 94%

“…Such a step is difficult "because labor unions' contracts must be satisfied in dismissal, customers must be persuaded to substitute other products, the trade must accept the firm's explanation concerning why the company is unable to cover particular needs of the customer, and the value of untold millions of dollars invested in competitive positioning can never be recovered if no buyer for the business unit can be found" (Harrigan, 1982, p. 729). Dissolution can occur through formal bankruptcy if a private debt restructuring is not possible (Gilson, 1990;Gilson, John, & Lang, 1990) or through delisting from a stock exchange (Baker & Kennedy, 2002).…”

Section: Defining the Domainmentioning

confidence: 99%

Thirty Years After Michael E. Porter: What Do We Know About Business Exit?

Decker

Mellewigt

2007

AMP

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Executive OverviewAlthough a business exit is an important corporate change initiative, the buyer's side seems to be more appealing to management researchers than the seller's because acquisitions imply growth, i.e., success. Yet from an optimistic viewpoint, business exit can effectively create value for the selling company. In this paper we attempt to bring the relevance of the seller's side back into our consciousness by asking: What do we know about business exit? We start our exploration with Porter (1976), focusing on literature that investigates the antecedents of, barriers to, and outcomes of business exit. We also include studies from related fields such as finance and economics. 1 Through this research we determine three clusters of findings: factors promoting business exit, exit barriers, and exit outcomes. Overall, it is the intention of this paper to highlight the importance of business exit for research and practice. Knowing what we know about business exits and their high financial value we should bear in mind that exit need not mean failure but a new beginning for a corporation.B usiness exit is an asset restructuring activity involving a diversified firm's divestiture of one of its businesses, such as Intel's abandonment of its DRAM business (Burgelman, 1996). Interest in this topic can be traced back to publications that represent milestones in economic research such as Bain (1956), who established the concept of barriers to entry, Caves ' (1964) analysis of the American industry, and the seminal article on exit barriers by Porter published in California Management Review in 1976, which helped raise the interest in business exit among a broad audience. Data from the U.S. illustrate that business exit continues to be relevant (cf. Figure 1). In the U.S., business services, real estate, and software were the most active divesting industries in 2005. A recent study by the consulting company Accenture highlights the growing relevance of business exits for years to come and predicts that " [f]or the next years, many companies will give far more thought to divestitures than they did in the late 1990s" (Anslinger, Jenk, & Chanmugam, 2003).Although a business exit is an important corporate change initiative, the buyer's side seems to be more appealing to management researchers than the seller's because acquisitions imply growth, i.e., success. This preference for the "success" side can be seen at the industry level as well. Managers, for example, may resist business exit because it is afflicted with the stigma of failure and is often seen as a result of poor corporate management. The reluctance of managers to admit that their organization or at least parts of it are in trouble is evidence of their substantial personal preoccupation with growth and their large personal costs in case of exit (Gilson, 1989). Yet from an optimistic point of view, business exit can effectively create value for the selling company. Indeed, the stigma certainly wasn't a factor for former GE CEO Jack Welch. Under his leadersh...

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“…In fact, detailed studies of U.S. reorganization cases suggest that creditors often condition renegotiations on the replacement of incumbent management and board of directors (Gilson (1990); Jostarndt and Sautner (2008); Ayotte and Morrison (2009);Baird and Rasmussen (2003)). Moreover, creditors of reorganized firms usually seek to exert greater control over the firms' policies by introducing more stringent debt covenants (Nini et al (2012);Bharath et al (2013)).…”

Section: Introductionmentioning

confidence: 99%

Bankruptcy choice with endogenous financial constraints

Tamayo

2017

Review of Economic Dynamics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Terms of use: Documents inFollowing a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Inter-American Development BankAbstract In this paper we study firm dynamics and industry equilibrium when firms under financial distress face a non-trivial choice between alternative bankruptcy procedures. Given limited commitment and asymmetric information, financial contracts specify default, renegotiation and reorganization policies. Renegotiation entails a redistribution of social surplus, while reorganization takes the form of enhanced creditor monitoring. Firms with better contract histories are less likely to default, but, contingent on default, firms with better outside options successfully renegotiate, in line with the empirical evidence. Unless monitoring is too costly, renegotiation leads to reorganization, which resembles actual bankruptcy practice. We calibrate the model to match certain aspects of the data on bankruptcy and firm dynamics in the U.S.. Our counterfactual experiments suggest that poorly designed bankruptcy arrangements can increase substantially the fraction of firms facing...

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Bankruptcy, boards, banks, and blockholders

Cited by 927 publications

References 18 publications

Debt Restructuring with Multiple Creditors and the Role of Exchange Offers

Debt Restructuring with Multiple Creditors and the Role of Exchange Offers

Thirty Years After Michael E. Porter: What Do We Know About Business Exit?

Bankruptcy choice with endogenous financial constraints

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