Optimal Holding Company Organization and Capital Structure

摘要：

Both the parent and subsidiaries of holding companies (HCs) can be financially leveraged. The subsidiaries may be simply bankruptcy-remote firewalled entities, created legally on paper and reported as off-balance sheet items, like Master Trusts and Conduits. Milti-tier HC capital structures have led to failures of many mega corporations like Enron and MCI-WorldCom. Major banks are now facing crises due to badly leveraged bankruptcy-remote entities. This paper shows how HCs should optimally determine their multi-tier financial leverage based on a novel debtholders’ option to walk out (DOW) of bankruptcy proceedings should their out-of-pocket expenses exceed the value of recovery. We show that (a) DOW is too costly for many HCs to seek full diversification, for example, by mergers, and (b) DOW can optimally determine the number of tiers and the capital structure of a holding company.

作者: Sankarshan Acharya

会议类型: 国际会议

会议名称: 2009年中国金融国际年会

会议地点: 广州

会议语种:英文

页码: 1-48

在线出版日期: 2009-07-07（万方平台首次上网日期，不代表论文的发表时间）