Creditors’ holdup, releveraging and the setting of private appropriation in a control contract between shareholders
De La Bruslerie, Hubert; Gueguen, Simon (2021), Creditors’ holdup, releveraging and the setting of private appropriation in a control contract between shareholders, International Review of Law and Economics, 68, p. 106023. 10.1016/j.irle.2021.106023
TypeArticle accepté pour publication ou publié
Journal nameInternational Review of Law and Economics
MetadataShow full item record
Author(s)De La Bruslerie, Hubert
Dauphine Recherches en Management [DRM]
Théorie économique, modélisation et applications [THEMA]
Abstract (EN)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.
Subjects / KeywordsCreditors’ holdup; Private benefits; Controlling shareholder; Debt leverage; Releveraging; Corporate governance
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