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Corporate Reorganizations and Non-Cash Auctions

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Author Info

  • Matthew Rhodes-Kropf

    (Graduate School of Business, Columbia University, New York,)

  • S. Viswanathan

    (Fuqua School of Business, Duke University, North Carolina)

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 suggests 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. Copyright The American Finance Association 2000.

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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 55 (2000)
Issue (Month): 4 (08)
Pages: 1807-1854

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Handle: RePEc:bla:jfinan:v:55:y:2000:i:4:p:1807-1854

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