Worthless Companies

12 Pages Posted: 16 Nov 2017 Last revised: 30 Aug 2018

J.B. Heaton

University of Chicago Law School; Conjecture LLC

Date Written: December 10, 2017

Abstract

Companies with worthless assets can have substantial efficient markets equity values and debt that trades near par if there is a probability that an irrational bidder will acquire the company. Even if most capital market participants recognize that the company's assets are worthless, efficient markets pricing of the worthless company's equity and debt precludes arbitrage, and it may be impossible to persuade the potential irrational bidder to abandon its plans. The worthless company hypothesis may shed light on the valuation of some high-profile start-ups, the 1990s dot-com bubble, and the bad performance of some short sellers.

Keywords: mergers & acquisitions, bad bidders, bubble company, unicorns, short selling

JEL Classification: G02, G32, G34, K22

Suggested Citation

Heaton, J.B., Worthless Companies (December 10, 2017). Available at SSRN: https://ssrn.com/abstract=3070575 or http://dx.doi.org/10.2139/ssrn.3070575

J.B. Heaton (Contact Author)

University of Chicago Law School ( email )

1111 East 60th Street
Room 608
Chicago, IL 60637
United States

Conjecture LLC

Chicago, IL
United States

HOME PAGE: http://conjecturellc.com

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