Upinder S. Dhillon

Resolution of Financial Distress : Debt Restructurings via Chapter 11, Prepackaged Bankruptcies, and Workouts

This paper examines empirically a comprehensive sample of firms undertaking Chapter 11 reorganizations, prepackaged bankruptcies, and workouts. We provide evidence that the restructuring decision depends on the degree of the firms leverage, the severity of its liquidity crisis, the extent of creditors coordination, and the magnitude of its economic distress. The results complement theoretical models of debt restructuring choices. We find that economically viable firms prefer workouts. Further, prepackaged bankruptcies are used by firms that are economically viable but face immediate liquidity problems.

Coercive Tender and Exchange Offers in Distressed High- Yield Debt Restructurings: An Empirical Analysis

This study empirically examines tender and exchange offers for a recent sample of 46 high-yield debt restructurings by financially distressed firms during 1989-1992. We find significant differences between tender and exchange offers. Firms using tender offers appear to be in less financial distress than firms using exchange offers and face a more severe holdout problem as revealed by the structure of targeted debt. We find a significant level of coercion in our sample where tender offers appear to be more coercive than exchange offers. An analysis of success rates and post-offer filings of Chapter 11 indicates that coercion is effective in alleviating the holdout problem. Tender offers also experience a positive stock and bond price response to announcements. Our analysis suggests that coercion is not detrimental to bondholders, and may benefit security holders by increasing the likelihood of a less costly, out-of-court restructuring. Finally, we find that the LTV decision did not render exchange offers ineffective in restructuring debt of financially distressed firms. Solicitation of exit consents in exchange offers has increased significantly after the LTV decision.

Employee stock ownership and corporate control: An empirical study

Abstract This study reexamines the wealth and corporate control effects of employee stock ownership plans (ESOPs) and finds that, the adoption of an ESOP is in general associated with positive wealth effects. However, the Polaroid court ruling significantly changed the markets perception by enhancing the antitakeover role of ESOPs. A significant negative market response is found only after the court ruling. Analysis of speculation and bid activity initiated after an ESOP adoption shows a significant decline in takeover related activity following the court decision. Regression analysis corroborates this evidence. Consistent with Stulz [ Journal of Financial Economics 20 (1988) 25–54] and Harris and Raviv [ Journal of Financial Economics 20 (1988) 55–86], the results also suggests a non-monotonic relationship between firm value and managerial ownership. The results support the Scholes and Wolfson [ Financial Management 49 (1990) 12–28] hypothesis that ESOPs are not primarily implemented for tax advantages.

Volatility, information, and double versus walrasian auction pricing in US and Japanese futures markets

Abstract This study empirically examines volatility in US and Japanese commodity futures markets. The US futures market, COMEX, is double auction with continuous trading, whereas the Japanese futures market, TOCOM, was Walrasian with discrete trading until April 1991. We find intraday volatility for gold futures contracts to be significantly higher on COMEX than TOCOM throughout the sample period and is attributable to differences in information flows and market micro-structures. Evidence is also provided that exchange volume conveys information both within and across markets, which is consistent with the French and Roll, 1986 (French, K.R., Roll, R., 1986. Stock return variances: The arrival of information and the reaction of traders. Journal of Financial Economics 17, 5–26) private-information based rational trading model. Finally, daily variance and autocorrelation estimates within COMEX are consistent with the extant literature on equity markets.

Bond calls, credible commitment and equity dilution: A theoretical and clinical analysis of Simultaneous Tender and Call (STAC) offers

This paper investigates, from both a theoretical and clinical perspective, bond tender offers accompanied by a threat to call nontendered bonds, or so-called STACs. The theoretical analysis explains the use of STACs and derives conditions under which the call threats embedded in STACs are credible. These conditions relate to the degree of bondholder coordination, and the relative costs of adverse selection and suboptimal call policies. Next, three cases of actual STACs-James River, May Department Stores, and Houston Power and Light-are investigated. A rough correspondence between the evolution of these STACs and the different strategic equilibria of the model is established.

Dividend reinvestment plans: An empirical analysis

This study examines the effect of initiating discount and no discount dividend reinvestment plans on shareholder wealth. The results show a negative response to DRP announcements, which is significantly smaller than that found in studies of new equity offerings. These results are consistent with the Scholes and Wolfson (1989) hypothesis that managers in need of equity capital use DRPs to mitigate the adverse stock price effects of new equity issue announcements. Furthermore, there is a significant difference in the price response of discount and no discount DRPs for industrial firms. This result is supportive of the signaling potential of discount DRPs. Supportive evidence is also found in the analysis of firm characteristics for industrial firms.

Choosing between fixed-and adjustable-rate mortgages: The case of commercial mortgages

This article reports on the determinants of the ARM choice for commercial real estate projects. The theoretical literature suggests that commercial real estate projects are more likely to be financed with an adjustable-rate mortgage (ARM) if the projects income stream or value is expected to rise with inflation over time. The empirical model estimated is a structural probit probability model of the ARM choice. Our results demonstrate that commercial borrowers typically place great emphasis on relative interest-rate differentials when deciding which mortgage is best. We also find that commercial mortgage borrowers will ordinarily be reluctant to issue an ARM when the fixed interest rate is low.