Fiduciary duties and equity-debtholder conflicts

2nd rev.
Fiduciary duties and equity-debtholder confli ...
Bo Becker, Bo Becker
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Last edited by MARC Bot
December 11, 2022 | History

Fiduciary duties and equity-debtholder conflicts

2nd rev.

We use an important legal event as a natural experiment to examine the effect of management fiduciary duties on equity-debt conflicts. A 1991 Delaware bankruptcy ruling changed the nature of corporate directors' fiduciary duties in firms incorporated in that state. This change limited managers' incentives to take actions favoring equity over debt for firms in the vicinity of financial distress. We show that this ruling increased the likelihood of equity issues, increased investment, and reduced firm risk, consistent with a decrease in debt-equity conflicts of interest. The changes are isolated to firms relatively closer to default. The ruling was also followed by an increase in average leverage and a reduction in covenant use. Finally, we estimate the welfare implications of this change and find that firm values increased when the rules were introduced. We conclude that managerial fiduciary duties affect equity-bond holder conflicts in a way that is economically important, has impact on ex ante capital structure choices, and affects welfare.

Publish Date
Language
English
Pages
52

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Edition Availability
Cover of: Fiduciary duties and equity-debtholder conflicts
Fiduciary duties and equity-debtholder conflicts
2011, Harvard Business School
in English - 2nd rev.

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Book Details


Edition Notes

"February 2010, revised June 2011, November 2011" -- Publisher's website.

"November 30, 2011" -- added t.p.

Previously published as "Equity-debtholder conflicts and capital structure"

Includes bibliographical references.

Published in
[Boston]
Series
Working paper / Harvard Business School -- 10-070, Working paper (Harvard Business School) -- 10-070.

The Physical Object

Pagination
52p.
Number of pages
52

ID Numbers

Open Library
OL43787253M
OCLC/WorldCat
742217314

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