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Seminar – Cashing out: The Rise of M&A in Bankruptcy

10:00 - 11:30

Dr Edith Hotchkiss, Carroll School of Management, Boston College
The use of M&A in bankruptcy has increased dramatically, leading to concerns that Chapter 11 leads to excessive liquidation of viable firms. In this paper, we argue that the rise of M&A has blurred traditional distinctions between “reorganisation” and “liquidation”. We examine the

drivers of M&A activity, based on factors specific to Chapter 11 as well as more general factors that drive M&A waves for non-distressed firms. M&A in bankruptcy is counter-cyclical, and is more likely when the costs of financing a reorganisation are greater than financing costs

to a potential acquirer. Consistent with a senior creditor liquidation bias, the greater use of secured debt leads to more sales in bankruptcy – but, this result holds only for sales that preserve going concern value. We also show that overall creditor recovery rates are higher, and

unsecured creditor recoveries and post-bankruptcy survival rates are not different, when bankrupt firms sell businesses as going concerns.


Seminar – Incentives, Social Comparison Costs, and the Proximity of Envy’s Object

13:30 - 15:00

Dr Tomasz Obloj, HEC Paris
We investigate the mechanisms that shape social comparison in organisations and generate social comparison costs. Drawing on the notions of inequity aversion and envy, we argue that heterogeneity in the strength and type of incentives provides an impetus for envy, and that the resulting social comparison costs are shaped not only by the magnitude of this impetus, but the distance of envy’s objects. In other words, the more proximate socially, structurally and geographically are those one envies the larger the costly behavioral response. To test our predictions, we use a quasi-experimental event during which outlets of a retail bank, previously operating under homogenous incentives, were assigned to four distinct tournament groups with differing ex ante probabilities of winning a prize-an event that provides envy’s impetus. We then explore how, for each outlet, the proximity of those assigned to more advantaged outlets objects of envy shape productivity responses. We find that organizational units with more socially, geographically, and structurally proximate peers assigned to ‘better’ tournament groups decreased their productivity, when compared to peers whose objects of envy were more socially, geographically, and structurally distant. We also show that these effects are stable over time. We discuss implications of these results for organizational design and boundaries.