Trading and voting in distressed firms

Olaru, Ioan and Zachariadis, Konstantinos (2011) Trading and voting in distressed firms. Financial Markets Group Discussion Papers (672). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We investigate the effect of the ability of "non-traditional" funds to short-sell the equity of their debtors. This enables the funds to vote on the restructuring proposals of distressed firms, while at the same time they separate their voting rights from their economic exposure. The effect on firm value depends on the discrepancy between the markets for debt and equity, discrepancy in how each assesses the probability of a proposal being accepted. We show that if the assessments between the two markets are different than the presence of a non-traditional fund decreases firm value. Firm value, however, is unaffected if the assessments are the same.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2011 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
Date Deposited:	29 Jun 2023 14:18
Last Modified:	11 Dec 2024 19:47
URI:	http://eprints.lse.ac.uk/id/eprint/119076

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