Assistant Professor of FinanceGeorgia Institute of Technology Scheller College of Business
800 West Peachtree Street, N.W.
30308 Atlanta, USA
Phone: +1 404 385 4569
eMail: andras.danis [at] scheller.gatech.edu
Link to personal university webpage
Link to SSRN author page
Do Empty Creditors Matter?
Evidence from Distressed Exchange Offers.
I examine the effect of credit default swaps (CDSs) on the restructuring of distressed firms. Theoretically, I show that if bondholders are insured with CDSs, the participation rate in a restructuring decreases. Using a sample of distressed exchange offers, I estimate that the participation rate is 29% lower if the firm has CDSs traded on its debt, compared to an unconditional mean of 54%. I use the introduction of the Big Bang protocol as a natural experiment. The results suggest that firms with CDSs find it difficult to reduce debt out-of-court, which is inefficient because it increases the likelihood of future bankruptcy.
Co-authored with Toni Whited and Daniel Rettl.
We develop a simple methodology to identify firms that are at or close to their optimal capital structure. Using this methodology we present cross-sectional and time series evidence in favor of dynamic tradeoff theory. In particular, at rebalancing points the relationship between profitability and leverage is positive, consistent with theoretical predictions. Also, the time series of market leverage, profitability, and equity payouts in the years prior to rebalancing events match the patterns obtained from simulated data. Our methodology is robust to recent critiques of empirical tests of dynamic tradeoff theory.
Shareholder Monitoring with
This paper provides a generalization of the theory of shareholder monitoring, originally developed by Admati, Pfleiderer, and Zechner (1994). An activist shareholder can trade with a finite number of strategic passive investors. If there are only a few investors, then their strategic behavior leads to an allocation of shares that increases the activist investor's incentive to monitor, which is socially desirable. This is because they take into account the effect of their purchases on the incentives of the large shareholder, so they buy fewer shares. On the other hand, a large number of investors leads to free-riding and less monitoring. In the limit, as the number of investors grows to infinity, a similar equilibrium as in Admati, Pfleiderer, and Zechner (1994) emerges. The model formalizes the idea that a financial market with a small number of shareholders provides stronger incentives for shareholder monitoring. The prediction is consistent with empirical findings which show that in countries where monitoring is important, e.g. because of weak legal protection of investors, shareholder concentration is high and stock market participation is low.