Finance - Theses
Permanent URI for this collection
Search Results
1 - 1 of 1
-
ItemEssays on Dual Ownership( 2023-10)This thesis explores the phenomenon of dual ownership, where investors hold both equity and debt in a firm simultaneously. Dual ownership has garnered significant attention in finance due to its potential to align the interests of shareholders and debtholders, mitigating agency costs and enhancing firm governance. This thesis aims to bridge gaps in the existing literature by investigating a relatively unexplored measure of dual ownership and concerning the potential drawbacks of the presence of dual holders. Chapter 3 of this thesis delves into the often-overlooked area of indirect dual ownership, comprising shareholders who simultaneously hold both equity and indirect debt through commercial banks, a major participant in the loan market. While previous research has mainly focused on non-commercial banking dual holders, this study recognizes the significance of indirect dual holders, given their rising prominence and representation as two-thirds of lead lenders in syndicated loans. Investigating the impact of indirect dual holders on creditor control rights and firm performance following covenant violations, the findings reveal that firms with indirect dual holders experience less creditor intervention and demonstrate better operating performance, resulting in positive abnormal returns. In contrast, banks with indirect dual holders show negative abnormal returns, indicating potential signalling effects. However, the overall portfolio of indirect dual holders has positive abnormal returns, suggesting they have net gain through dual holding. The insights from this chapter underscore the importance of considering indirect dual holders in the syndicated loan market and provide valuable contributions to understanding the multifaceted implications of dual ownership on firm behaviour and performance. Chapter 4 investigates the impact of dual ownership on conflicts between lead lenders and participant lenders within syndicated loans. The study finds that the lead lender's equity stake in the borrowing firm increases the lead-participant conflict, while participants holding equity decrease the conflict. Additionally, (potential) lenders with an equity stake in the borrower are more likely to join the syndicate, suggesting the lead lender's preference for lenders with less conflict of interest. Chapter 5 analyses the optimality of debt contracts and the managerial incentive mechanism design in the presence of dual holders. The study introduces a capital structure model with dual-holder investors who hold both debt and equity. Dual holders' reduced incentive to liquidate the firm compared to pure debtholders necessitates adjustments to the optimal debt level to induce managerial effort. This thesis makes valuable contributions to the existing literature, providing insights into the significant role of indirect dual holders, the impact of dual ownership on conflicts within syndicated loans, and the impact of dual holders on managerial incentive mechanisms. The findings have implications for corporate governance practices and policymaking, offering guidance to financial institutions, corporations, and investors. By addressing the overlooked aspects of dual ownership, this research enhances our understanding of its complexities and implications for firm behaviour and performance.