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The Impact of Security Trading on Corporate Restructurings

Konstantinos E. Zachariadis

London School of Economics

Ioan Florian Olaru

CastleRock Macro

September 29, 2014

Hedge funds are heavily involved in corporate restructurings through their debt holdings. A concern is that funds might short-sell the equity of their debtors and vote for a value-reducing outcome to gain from their short position. We analyze the strategic game between a firm's manager, who makes a restructuring proposal, and a fund that can trade in the firm's securities. We show that, in equilibrium, the manager makes a proposal that allows the fund to profitably execute the above strategy if and only if the markets for debt and equity are segregated and other traders are buying equity on average.

Number of Pages in PDF File: 58

Keywords: debt restructuring, short-selling, hedge funds, empty creditors, distressed investing

JEL Classification: G30, G32, G33, G34

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Date posted: August 3, 2010 ; Last revised: September 30, 2014

Suggested Citation

Zachariadis, Konstantinos E. and Olaru, Ioan Florian, The Impact of Security Trading on Corporate Restructurings (September 29, 2014). Available at SSRN: http://ssrn.com/abstract=1652152 or http://dx.doi.org/10.2139/ssrn.1652152

Contact Information

Konstantinos E. Zachariadis (Contact Author)
London School of Economics ( email )
Houghton St
Department of Finance
London, WC2A 2AE
United Kingdom
+442079556541 (Phone)
+442078494647 (Fax)
HOME PAGE: http://www2.lse.ac.uk/finance/people/profiles/KostasZachariadis.aspx
Ioan F. Olaru
CastleRock Macro ( email )
101 Park Ave
New York, NY 10178
United States
Feedback to SSRN

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Download Rank: 101,980
References:  38
Citations:  1

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