Working Paper: CEPR ID: DP2030
Authors: Francesca Cornelli; Leonardo Felli
Abstract: The restructuring of a bankrupt company often entails a change of control. By efficiency of a bankruptcy procedure it is usually meant that the control is allocated into the hands of those who can maximize its value. In this paper we focus instead on how to allocate control with a procedure that allows the creditors to maximize their returns. The conclusion is that creditors should be allowed to retain a fraction of the shares of the company.
Keywords: bankruptcy; change of control; revenue efficiency; auctions
JEL Codes: D44; G33; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| creditors retaining equity stakes (G32) | revenue maximization (L21) |
| control allocation (E61) | firm value maximization (L21) |
| retaining equity by creditors (G32) | maximization of their returns (L21) |
| selling minimum stake necessary to transfer control (G34) | optimize outcomes (L21) |
| privatizing the bankruptcy procedure (K35) | inefficient outcomes (D61) |
| private benefits from control (D61) | optimal for creditors to retain equity stake (G32) |