FINANCE RESEARCH SEMINAR “Creditor’s holdup, releveraging, and the setting of private appropriation in a control contract between shareholders” – Hubert de La Bruslerie – University of Paris-Dauphine

May 21, 2019

06 June 2019Lille & Paris



Hubert de La Bruslerie

University of Paris-Dauphine

Date and Location

Thursday, June 6th, 2019 – 14:00 – 15:30

Lille : Visioroom E220 / Paris: Visioroom P305


Debt is analyzed in relation to the conflict between three parties, a controlling shareholder, outside investors and creditors. We follow Jensen and Meckling’s (1976) and Myers’ (1977) intuitions that a high leverage may result in excess value appropriation by creditors while at the same time acting to discipline private benefits appropriation. A contingent claim valuation model is used to show that debt is also a key governance variable because it can moderate or enhance private benefits and because incentivization triggers a transfer of value to creditors. We show that debt is a complex regulation tool in an agency contract approach, as it is simultaneously an expropriation device and a limitation tool. Debt is a disciplinary tool for shareholders, but to avoid a holdup by creditors, we also need to discipline the disciplinary tool.
Authors: H. de La Bruslerie, Professor of Finance, University Paris Dauphine; S. Gueguen, Assistant Professor of Finance, University of Cergy-Pontoise

JEL: G30/ G32 / G34

Keywords: creditors’ holdup, private benefits, controlling shareholders, debt leverage, corporate governance

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