Distressed Firm Restructurings and Hedge Funds with Expertise: Saviors or Vultures?

58 Pages Posted: 10 Nov 2020

See all articles by Nina Baranchuk

Nina Baranchuk

University of Texas at Dallas - Naveen Jindal School of Management

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: September 21, 2020

Abstract

We model restructuring when hedge funds with expertise in navigating distress intervene. Whether hedge funds help distressed firms or act like vultures are two sides of the same coin. Interventions help when firm prospects are bright and assets are not easily redeploy-able. Interventions are vulture like when bankruptcy is costly and fire sale conditions prevail in the market for distressed assets. Positive outcomes are more likely when funds intervene by acquiring equity though acquiring debt is more likely. These effects are the result of systematic changes in expectations and strategies of firms' other claimants in response to hedge fund intervention.

Keywords: hedge fund, restructuring, bankruptcy, asset sales

JEL Classification: G33

Suggested Citation

Baranchuk, Nina and Rebello, Michael J., Distressed Firm Restructurings and Hedge Funds with Expertise: Saviors or Vultures? (September 21, 2020). Available at SSRN: https://ssrn.com/abstract=3696676 or http://dx.doi.org/10.2139/ssrn.3696676

Nina Baranchuk (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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