Full Priority and Full Compensation in Corporate Reorganizations a Reappraisal

Blum, Walter J.

doi:10.2307/1598355

Cited by 5 publications

(3 citation statements)

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“…For further discussion of this legal issue, see Blum [2] and Blum-Kaplan [3]. For further discussion of this legal issue, see Blum [2] and Blum-Kaplan [3].…”

Section: F Wealth Transfers Across Security Classesmentioning

confidence: 99%

The Impact of Capital Structure Change on Firm Value: Some Estimates

Masulis¹

1983

The Journal of Finance

126

108

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“…For further discussion of this legal issue, see Blum [2] and Blum-Kaplan [3]. For further discussion of this legal issue, see Blum [2] and Blum-Kaplan [3].…”

Section: F Wealth Transfers Across Security Classesmentioning

confidence: 99%

The Impact of Capital Structure Change on Firm Value: Some Estimates

Masulis¹

1983

The Journal of Finance

126

108

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“…Usually a plan of recapitalization must be approved by a majority of the securityholders who are directly affected. 2 Unlike most other forms of capital structure changes, exchange offers and recapitalizations (hereafter jointly termed EOs) involve little or no cash inflow or outflow from the firm. This makes them especially well suited for analyzing the impacts of capital structure changes because the firms' asset structures are essentially unaltered.…”

Section: Exchange Offer Samplementioning

confidence: 99%

“…(b) the EO changed the amount of debt or preferred stock outstanding, so that more than one major class of firm securities (i.e., common stock, preferred stock, or debt) is altered;4 (c) no other major asset structure or capital structure change announcements were made within one week of the primary EO announcements;5 (d) cash and other asset distributions associated with the EO did not exceed 25 percent of the value of the securities retired in the offer; and (e) the EO was successfully completed. 2 There can be many alternative motivations for, and constraints against, exchange offers based on the specific feature of management's security holdings in the firm, management's labor contracts and senior securities' protective covenants, as explained in Jensen-Meckling [9] and Smith-Warner [21].…”

Section: Exchange Offer Samplementioning

confidence: 99%

The Impact of Capital Structure Change on Firm Value: Some Estimates

Masulis¹

1983

The Journal of Finance

246

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This study develops a model based on current corporate finance theories which explains stock returns associated with the announcement of issuer exchange offers. The major independent variables are changes in leverage multiplied by senior security claims outstanding and changes in debt tax shields. Parameter estimates are statistically significant and consistent in sign and relative magnitude with model predictions. Overall, 55 percent of the variance in stock announcement period returns is explained. The evidence is consistent with taxbased theories of optimal capital structure, a positive debt level information effect, and leverage-induced wealth transfers across security classes. THERE IS AN EXTENSIVE theoretical literature concerning optimal capital structure.' However, there is little empirical evidence of a relation between changes in capital structure and firm value. In the best known test of an optimal capital structure model, Miller-Modigliani [15] reported evidence of a positive relationship between firm value and leverage which they attributed to a debt tax shield effect. Their results are suspect, however, because of statistical problems they encountered when attempting to adjust for differences in the firms' asset structures. Since only regulated firms were examined, there is also some concern that their empirical findings were caused by the regulatory environment in which these firms operate. No strong evidence of a relation between a firm's value and the size of its debt tax shield has been uncovered since the Miller-Modigliani study.This study estimates the impact of a change in debt level on firm values. Two forms of capital structure change are examined: issuer exchange offers, and recapitalizations. The results indicate that both stock prices and firm values are positively related to changes in debt level and leverage; senior security prices are negatively related to these capital structure change variables. This evidence is consistent with models of optimal capital structure and with the hypothesis that debt level changes release information about changes in firm value. especially Robert Hamada, for their considerable help and encouragement. This is based on a chapter of my dissertation written at the University of Chicago. I have also benefited from the suggestions of the participants in the many finance workshops where this paper was presented. I also wish to thank the many U.S. corporations which voluntarily co-operated in this study. An earlier version of this paper was presented at the Western Finance Association meetings in Jackson Hole in June 1981. I take sole responsibility for any remaining errors. 'See, for example, Modigliani-Miller [16, 17], Kraus-Litzenberger [10], Scott [19], Miller [14], and DeAngelo-Masulis [5].

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Credit Contracts, Collateral-Based Security Agreements, and Bankruptcy

Drukarczyk

1984

Lecture Notes in Economics and Mathematical Systems

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Full Priority and Full Compensation in Corporate Reorganizations a Reappraisal

Cited by 5 publications

References 0 publications

The Impact of Capital Structure Change on Firm Value: Some Estimates

The Impact of Capital Structure Change on Firm Value: Some Estimates

The Impact of Capital Structure Change on Firm Value: Some Estimates

Credit Contracts, Collateral-Based Security Agreements, and Bankruptcy

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