Abstract
We propose a new role for private investments in public equity (PIPEs) as a mechanism to reduce coordination frictions among existing equity holders. We establish a causal link between the coordination ability of incumbent shareholders and PIPE issuance. This result obtains even after controlling for alternative explanations such as information asymmetry and access to public markets. Improved equity coordination following a private placement leads to favorable debt renegotiations within one year of issuance. Mitigating coordination frictions among shareholders ultimately decreases the odds of firm default in half.
Original language | English (US) |
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Pages (from-to) | 213-230 |
Number of pages | 18 |
Journal | Journal of Financial Economics |
Volume | 108 |
Issue number | 1 |
DOIs | |
State | Published - Apr 2013 |
Externally published | Yes |
Keywords
- Debt renegotiation
- Equity issuance
- Firm distress
- Private placements
- Shareholder coordination
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management