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Efficient Recapitalization

Philippon, Thomas ; Schnabl, Philipp

The Journal of Finance, 1 February 2013, Vol.68(1), pp.1-42 [Peer Reviewed Journal]

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Title:
Efficient Recapitalization
Author/Creator: Philippon, Thomas ; Schnabl, Philipp
Language: English
Subjects: Economics -- Economic disciplines -- Financial economics ; Economics -- Economic disciplines -- Financial economics ; Economics -- Economic disciplines -- Financial economics ; Economics -- Economic disciplines -- Financial economics ; Economics -- Economic conditions -- Economic crises ; Political science -- Politics -- National politics ; Business -- Accountancy -- Financial accounting ; Economics -- Economic disciplines -- Financial economics ; Economics -- Macroeconomics -- Money ; Economics -- Economic disciplines -- Financial economics
Is Part Of: The Journal of Finance, 1 February 2013, Vol.68(1), pp.1-42
Description: We analyze government interventions to recapitalize a banking sector that restricts lending to firms because of debt overhang. We find that the efficient recapitalization program injects capital against preferred stock plus warrants and conditions implementation on sufficient bank participation. Preferred stock plus warrants reduces opportunistic participation by banks that do not require recapitalization, although conditional implementation limits free riding by banks that benefit from lower credit risk because of other banks' participation. Efficient recapitalization is profitable if the benefits of lower aggregate credit risk exceed the cost of implicit transfers to bank debt holders.
Identifier: ISSN: 00221082 ; E-ISSN: 15406261

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