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How to Sell a (Bankrupt) Company

Author Info

  • 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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-05/cesifo_wp292.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 292.

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Date of creation: 2000
Date of revision:
Handle: RePEc:ces:ceswps:_292
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Keywords: Bankruptcy; control stakes; auction;

Other versions of this item:

Find related papers by JEL classification:
  • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • 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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  1. Philippe Aghion & Patrick Bolton, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 473-494.
  2. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
  3. Philippe Aghion & Oliver Hart & John Moore, 1992. "The Economics of Bankruptcy Reform," CEP Discussion Papers dp0093, Centre for Economic Performance, LSE.
  4. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and the Market for Corporate Control," NBER Working Papers 2347, National Bureau of Economic Research, Inc.
  5. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA.
  6. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 425-448.
  7. 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.
  8. Leonardo Felli & Francesca Cornelli, 1998. "Revenue Efficiency and Change of Control: The Case of Bankruptcy," FMG Discussion Papers dp300, Financial Markets Group.
  9. 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.
  10. Hansen, Robert G, 1985. "Auctions with Contingent Payments," American Economic Review, American Economic Association, vol. 75(4), pages 862-65, September.
  11. R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
  12. Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-45, September.
  13. Lucian Arye Bebchuk, 1994. "Efficient and Inefficient Sales of Corporate Control," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 957-993.
  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. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Zheng, Charles Zhoucheng, 2002. "Optimal Auction with Resale," Staff General Research Papers Archive 12664, Iowa State University, Department of Economics.
  17. John G. Riley, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 409-429.
  18. 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.
  19. Shleifer, Andrei & Vishny, Robert W., 1986. "Large Shareholders and Corporate Control," Scholarly Articles 3606237, Harvard University Department of Economics.
  20. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
  21. Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
  22. 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.
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Cited by:

  1. At, Christian & Burkart, Mike & Lee, Samuel, 2007. "Security-Voting Structure and Bidder Screening," CEPR Discussion Papers 6241, C.E.P.R. Discussion Papers.
  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.
  3. Jaka Cepec & Peter Grajzl & Katarina Zajc, 2016. "Debt Recovery in Firm Liquidations: Do Liquidation Trustees Matter?," CESifo Working Paper Series 6034, CESifo Group Munich.

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