Corporate Reorganizations and Non-Cash Auctions

Posted: 19 May 2004

See all articles by Matthew Rhodes-Kropf

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

S. Viswanathan

Duke University - Fuqua School of Business; Duke University - Department of Economics

Abstract

This paper extends the theory of non-cash auctions by considering the revenue and efficiency of using different securities. Research on bankruptcy and privatization suggest using non-cash auctions to increase cash-constrained bidder participation. We examine this proposal and demonstrate that securities may lead to higher revenue. However, bidders pool unless bids include debt, which results in possible repossession by the seller. This suggests all equity outcomes are unlikely, and explains the high debt of reorganized firms. Securities also inefficiently determine bidders' incentive contracts and the firm's capital structure. Therefore, we recommend a new cash auction for an incentive contract.

Keywords: Auctions, Multidimensional Auction, Financial Constraints

Suggested Citation

Rhodes-Kropf, Matthew and Viswanathan, S., Corporate Reorganizations and Non-Cash Auctions. Available at SSRN: https://ssrn.com/abstract=547204

Matthew Rhodes-Kropf (Contact Author)

Harvard Business School - Entrepreneurial Management Unit ( email )

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National Bureau of Economic Research (NBER) ( email )

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S. Viswanathan

Duke University - Fuqua School of Business ( email )

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Duke University - Department of Economics

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