Articles

Shareholder Bargaining Power and the Emergence of Empty Creditors

S. COLONNELLO, M. EFING, F. ZUCCHI

Journal of Financial Economics

A paraître

Départements : Finance, GREGHEC (CNRS)

Mots clés : Empty Creditors, Credit Default Swaps, Bargaining Power, Real Effects

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2787062


Credit default swaps (CDSs) can create empty creditors who may push borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative


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