Does Shareholder Coordination Matter? Evidence from Private Placements

48 Pages Posted: 15 Mar 2011 Last revised: 18 Sep 2012

Nickolay Gantchev

University of North Carolina Kenan-Flagler Business School

Indraneel Chakraborty

University of Miami

Date Written: September 11, 2012

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.

Keywords: Private placements, PIPE, Equity issuance, Shareholder coordination, Debt renegotiation, Financial distress

JEL Classification: G32, G33, G34

Suggested Citation

Gantchev, Nickolay and Chakraborty, Indraneel, Does Shareholder Coordination Matter? Evidence from Private Placements (September 11, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1785463 or http://dx.doi.org/10.2139/ssrn.1785463

Nickolay Gantchev (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-4926 (Phone)
919-962-2068 (Fax)

HOME PAGE: http://sites.google.com/site/nickolaygantchev/

Indraneel Chakraborty

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

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