Does shareholder coordination matter? Evidence from private placements

Indraneel Chakraborty, Nickolay Gantchev

Research output: Contribution to journalArticle

18 Scopus citations

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 languageEnglish (US)
Pages (from-to)213-230
Number of pages18
JournalJournal of Financial Economics
Volume108
Issue number1
DOIs
StatePublished - Apr 1 2013
Externally publishedYes

Keywords

  • Debt renegotiation
  • Equity issuance
  • Firm distress
  • Private placements
  • Shareholder coordination

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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