Creditors’ holdup, releveraging and the setting of private appropriation in a control contract between shareholders

Hubert de La Bruslerie and Simon Gueguen

International Review of Law and Economics, 2021, vol. 68, issue C

Abstract: Debt is analyzed in relation to the conflict between three parties, a controlling shareholder, outside investors and creditors. We follow Jensen and Meckling’s (1976) and Myers’ (1977) intuitions that leverage may result in excess value appropriation by creditors while at the same time acting to discipline private benefits appropriation. Creditors’ holdup refers to the appropriation by the incumbent debtholders of a large part of the additional value created by an incentivized controlling shareholder. This paper introduces a negotiation framework between controlling and outside shareholders in which releveraging and private benefits are decided while the process of value creation initiates a transfer of value to the creditors. The admissible contracts of control involve a minimum jump in leverage. This result gives a theoretical foundation for the leveraged recap decisions observed in the market and one-off variations of the capital structure.

Keywords: Creditors’ holdup; Private benefits; Controlling shareholder; Debt leverage; Releveraging; Corporate governance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0144818821000478
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Creditors’ holdup, releveraging and the setting of private appropriation in a control contract between shareholders (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:68:y:2021:i:c:s0144818821000478

DOI: 10.1016/j.irle.2021.106023

Access Statistics for this article

International Review of Law and Economics is currently edited by C. Ott, A. W. Katz and H-B. Schäfer

More articles in International Review of Law and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().