Faculty of Business External Research Seminar - Finance - Bünyamin Önal

Özyeğin Üniversitesi

 

Speaker: Bünyamin Önal (Sabancı University) will present to us his joint work with Vidhan Goyal (HKUST), Deniz Okat (HKUST) and Nan Xiong (Durham).

Title: Creating Value by Diluting Managerial Ownership

 

Abstract: Owner-managers of competing firms benefit when they jointly commit to reducing efforts by lowering their stakes in their respective firms. Convertible debt helps to sustain such cooperation. By issuing debt that is convertible into equity, the owner of a firm can commit to reducing her stake only if her rival does the same. Empirical evidence strongly supports this theory: firms are more likely to issue convertible debt when they face more antitrust scrutiny or when the possibility of a rival entry is high. Furthermore, this effect is located typically where our theory predicts, i.e., when the firm is privately held and in a high-growth industry.