Does Shareholder Coordination Matter? Evidence from Private Placements
University of North Carolina Kenan-Flagler Business School
Southern Methodist University (SMU), Cox School of Business
September 11, 2012
Journal of Financial Economics (JFE), Forthcoming
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.
Number of Pages in PDF File: 48
Keywords: Private placements, PIPE, Equity issuance, Shareholder coordination, Debt renegotiation, Financial distress
JEL Classification: G32, G33, G34
Date posted: March 15, 2011 ; Last revised: September 18, 2012
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