Large Shareholders and Financial Distress

43 Pages Posted: 27 Mar 2019

See all articles by Christian C. Opp

Christian C. Opp

University of Rochester - Simon Business School; National Bureau of Economic Research (NBER)

Date Written: March 13, 2019

Abstract

I examine large shareholders' externalities on other claim holders when firms are financially distressed. To this end, I develop a tractable dynamic model of the interplay between these blockholders and regular equity holders. Blockholders' information acquisition and investment decisions play a pivotal role in distressed firms' access to finance, affecting both total firm value and its distribution across claims. The impact on distress costs is non-monotone; whereas blockholders' information exacerbates debt overhang for intermediate levels of distress, it increases firms' survival chances in deep distress. These findings reveal that frictions delaying block acquisitions to "last minute" rescue interventions can in fact be efficiency-enhancing.

Keywords: Blockholders, Financial Distress, Credit Risk, Debt Overhang, Private Investments in Public Equity

JEL Classification: G12; G23; G32; G33; G38

Suggested Citation

Opp, Christian C., Large Shareholders and Financial Distress (March 13, 2019). Available at SSRN: https://ssrn.com/abstract=3346112 or http://dx.doi.org/10.2139/ssrn.3346112

Christian C. Opp (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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