Title

Does Shareholder Coordination Matter? Evidence from Private Placements

Publication Date

3-15-2011

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.

Document Type

Article

Keywords

Private placements, PIPE, Equity issuance, Shareholder coordination, Debt renegotiation, Financial distress

Disciplines

Finance

DOI

10.2139/ssrn.1785463

Source

SMU Cox: Finance (Topic)

Language

English

COinS