TY  - JOUR
AU  - Philippon,Thomas
AU  - Schnabl,Philipp
TI  - Efficient Recapitalization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14929
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14929
L1  - http://www.nber.org/papers/w14929.pdf
N1  - Author contact info:
Thomas Philippon
New York University
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY  10012-1126
Tel: 212/998-0490
Fax: 212/995-4233
E-Mail: tphilipp@stern.nyu.edu

Philipp Schnabl
Leonard N. Stern School of Business
Kaufman Management Center
44 West 4th Street, Room 9-76
New York, NY 10012
E-Mail: schnabl@stern.nyu.edu
AB  - 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, while 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.
ER  -