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Revenue Efficiency and Change of Control: The Case of Bankruptcy

Listed author(s):
  • Francesca Cornelli
  • Leonardo Felli

The restructing of a bankrupt company often entails a change of control. By efficiency of a bankruptcy procedure it is usually meant that the control is allocated into the hands of those who can maximise its value. In this paper we focus instead on how to allocate control with a procedure that allows creditors to maximise their returns. The conclusion is that creditors should be allowed to retain a fraction of the shares of the company.

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Paper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 18-98.

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Handle: RePEc:fth:pennfi:18-98
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  1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
  2. Grossman, Sanford J. & Hart, Oliver D., 1988. "One share-one vote and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 175-202, January.
  3. 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.
  4. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 425-448.
  5. Bebchuk, Lucian Ayre & Chang, Howard F, 1992. "Bargaining and the Division of Value in Corporate Reorganization," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 253-279, April.
  6. Webb, David C, 1991. "An Economic Evaluation of Insolvency Procedures in the United Kingdom: Does the 1986 Insolvency Act Satisfy the Creditors' Bargain?," Oxford Economic Papers, Oxford University Press, vol. 43(1), pages 139-157, January.
  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. John G. Riley, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 409-429.
  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. Francesca Cornelli & David D. Li, 1997. "Large Shareholders, Private Benefits of Control, and Optimal Schemes of Privatization," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 585-604, Winter.
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