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How to Sell a (Bankrupt) Company

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Author Info

  • Renée Birgit Adams
  • Francesca Cornelli
  • Leonardo Felli

Abstract

The restructuring of a bankrupt company often entails the sale of such company. This paper suggests a way to sell the company that maximizes the creditors' proceeds. The key to this proposal is the option left to the creditors to retain a fraction of the shares of the company. Indeed, by retaining the minority stake, creditors reduce to a minimum the rents that the sale of the company leaves in the hands of the buyer.

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Bibliographic Info

Article provided by International Review of Finance Ltd. in its journal International Review of Finance.

Volume (Year): 12 (2012)
Issue (Month): 2 (06)
Pages: 197-226

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Handle: RePEc:bla:irvfin:v:12:y:2012:i:2:p:197-226

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References

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  1. Zingales, Luigi, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 425-48, July.
  2. Leonardo Felli & Francesca Cornelli, 1998. "Revenue Efficiency and Change of Control: The Case of Bankruptcy," FMG Discussion Papers dp300, Financial Markets Group.
  3. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June.
  4. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and The Market for Corporate Control," Working papers 440, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-45, September.
  6. Zheng, Charles Zhoucheng, 2002. "Optimal Auction with Resale," Staff General Research Papers 12664, Iowa State University, Department of Economics.
  7. Aghion, Philippe & Hart, Oliver & Moore, John, 1992. "The Economics of Bankruptcy Reform," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 523-46, October.
  8. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
  9. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  10. John G. Riley, 1986. "Ex Post Information in Auctions," UCLA Economics Working Papers 367, UCLA Department of Economics.
  11. Lucian Arye Bebchuk, 1995. "Efficient and Inefficient Sales of Corporate Control," NBER Working Papers 4788, National Bureau of Economic Research, Inc.
  12. Matthew Rhodes-Kropf & S. Viswanathan, 2000. "Corporate Reorganizations and Non-Cash Auctions," Journal of Finance, American Finance Association, vol. 55(4), pages 1807-1854, 08.
  13. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
  14. Mike Burkart & Denis Gromb & Fausto Panunzi, 1998. "Why Higher Takeover Premia Protect Minority Shareholders," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 172-204, February.
  15. Lawrence M. Ausubel & Peter Cramton, 1998. "The Optimality of Being Efficient," Papers of Peter Cramton 98wpoe, University of Maryland, Department of Economics - Peter Cramton, revised 18 Jun 1999.
  16. Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
  17. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
  19. Hansen, Robert G, 1985. "Auctions with Contingent Payments," American Economic Review, American Economic Association, vol. 75(4), pages 862-65, September.
  20. Gilson, Stuart C., 1990. "Bankruptcy, boards, banks, and blockholders : Evidence on changes in corporate ownership and control when firms default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 355-387, October.
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Citations

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Cited by:
  1. Christian At & Mike Burkart & Samuel Lee, 2007. "Security-voting structure and bidder screening," LSE Research Online Documents on Economics 24473, London School of Economics and Political Science, LSE Library.
  2. Mehmet Ekmekci & Nenad Kos & Rakesh Vohra, 2013. "Just Enough or All: Selling a Firm," Working Papers 470, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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