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Equity Offerings in Financial Distress – Evidence from German Restructurings


  • Philipp Jostarndt


For a sample of 267 financially distressed German corporations, I analyze firms’ decision to recapitalize by raising fresh equity. I find evidence consistent with the hypothesis that wealth transfers from owners to creditors, which result from a costly debt overhang present a potential impediment to a successful private restructuring. Firms with high leverage and low future growth potential have troubles raising new funds. However, lending banks frequently accompany offerings with generous debt-concessions, which suggests that firms are able to overcome a debt-overhang in private bargains. Evidence from stock returns around equity offering announcements indicates that high wealth transfers do reduce shareholder wealth. yet, overall announcement returns are significantly positive, indicating that the market considers equity offerings an effective measure for tackling distress out of court.

Suggested Citation

  • Philipp Jostarndt, 2009. "Equity Offerings in Financial Distress – Evidence from German Restructurings," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 61(1), pages 84-111, January.
  • Handle: RePEc:sbr:abstra:v:61:y:2009:i:1:p:84-111

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    Cited by:

    1. Jetley, Gaurav & Mondal, Shamim S., 2015. "Rights issues and creeping acquisitions in India," Emerging Markets Review, Elsevier, vol. 23(C), pages 68-95.
    2. repec:eee:jbfina:v:82:y:2017:i:c:p:40-58 is not listed on IDEAS
    3. Jostarndt, Philipp & Sautner, Zacharias, 2008. "Financial distress, corporate control, and management turnover," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2188-2204, October.

    More about this item


    Equity Issues; Financial Distress; Wealth Transfers;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation


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