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| FINANCING BIDDERS IN TAKEOVER CONTESTS (download) Abstract | |
| The paper studies takeover contests in which acquirers need to raise outside financing to pay for their cash bids. Bidding depends both on the type of financing (e.g., debt, equity, menus of securities) and its cost (e.g., interest rate), but the type of financing is relatively more important for the acquirers' payoffs. It is determined by whether they have access to a competitive market for capital -- without such access they issue the most information sensitive type of security. Furthermore, the seller can induce more aggressive bidding by agreeing to accept both cash and security bids even if acquirers raise financing from outside financiers and pay in cash. |
| PRESERVING "DEBT CAPACITY" OR "EQUITY CAPACITY": AN OPTIMAL SECURITY DESIGN APPROACH with Roman Inderst (download) Abstract | |
| In a framework of optimal security design, we show when firms should preserve "equity capacity" through choosing high target leverage or "debt capacity" through choosing low target leverage. Thereby, firms reduce a problem of underinvestment or overinvestment when they must raise future financing under asymmetric information. Which problem arises depends on whether additional financing is raised at competitive terms or whether there is a lock-in with initial investors. Firms' initial (or target) capital structure matters as it affects the "outside option" of both insiders and outside investors. Our theory also entails implications for start-up and venture capital financing. |
| INDIRECT BANKRUPTCY COSTS AND BANKRUPTCY LAW with Zacharias Sautner (download) Abstract | |
| We use a simple model to predict how creditor rights affect the accumulation and magnitude of indirect bankruptcy costs. We empirically identify these effects by using two matched samples of bankrupt firms that provide us with variation in creditor rights. Consistent with our model, we find that indirect bankruptcy costs accumulate more slowly under a creditor friendly bankruptcy law. We also provide cross-sectional evidence that indirect bankruptcy costs are larger if creditor rights are weaker. |
| WORK IN PROGRESS: | |
| OPTIMAL FINANCING AND TIMING OF CORPORATE RESTRUCTURINGS (coming soon) with Roman Inderst |