Efficient Recapitalization

Thomas Philippon () and Philipp Schnabl

No 7516, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze public interventions to alleviate debt overhang among private firms when the government has limited information and limited resources. We compare the efficiency of buying equity, purchasing existing assets, and providing debt guarantees. With symmetric information, all the interventions are equivalent. With asymmetric information between firms and the government, buying equity dominates the two other interventions. We solve for the optimal intervention, and show how it can be implemented with subordinated loans and warrants.

Keywords: Bailout; Capital; Financial crisis; Moral hazard (search for similar items in EconPapers)
JEL-codes: G3 G34 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-cta and nep-ppm
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Efficient Recapitalization (2013)
Working Paper: Efficient Recapitalization (2009)
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