An empirical analysis on the rationality of corporate reorganization and capital markets-an application of option pricing model

Research Project

Project/Area Number	10630090
Research Category	Grant-in-Aid for Scientific Research (C)
Allocation Type	Single-year Grants
Section	一般
Research Field	Public finance/Monetary economics
Research Institution	Yokohama City University
Principal Investigator	MARUYAMA Hiroshi Yokohama City University, Professor, 商学部, 教授 (30181837)
Project Period (FY)	1998 – 1999
Project Status	Completed (Fiscal Year 1999)
Budget Amount *help	¥500,000 (Direct Cost: ¥500,000) Fiscal Year 1999: ¥500,000 (Direct Cost: ¥500,000)
Keywords	OPTION PRICING MODEL / BLACK-SCHOLES EQUATION / BANKRUPTCY / REORGANIZATION / VOLATILITY / ASSET VALUE / SECANT METHOD / REORGANIZING CORPORATIONS / 減資 / 関係人集会
Research Abstract	The purpose of this study is to investigate the efficiency and the equality of the Corporation Reorganization Act of 1952 empirical and quantitative analysis. Specifically, the option pricing model is used to estimate the value of reorganizing corporations. The data were drawn from the database constructed by myself which was based on public announcements on the Official Gazette. It is common knowledge among financial researchers that a corporation's equity can be interpreted as an call option to the firm asset. However, there exists only few attempts so far been made at this approach. The Black-Scholes equation and the Merton's relationship on equity volatility and asset volatility were used to conastruct simultaneous equations. Since it is impossible to solve these nonlinear simultaneous equations analytically, a numerical method, the secant method, was employed to get solutions for these simultaneous equations. The data of 23 listed company that filed for reorganization procedure were used. I have not had convergence difficulties in the process of the estimation. The estimates of the reorganizing corporations suggest the existence of biases toward new equity holders.