This paper is an exploration of the ability of game theory to explain real-world corporate maneuvering. We explore this issue by investigating bond tender offers accompanied by a threat to call nontendered bonds, so called “Simultaneous Tender and Call” (STAC) offers. We argue that STACs engender a transparent game played by bondholders and shareholders. We model this game and use this model to predict the outcome of STACs. Finally, we investigate the issue of whether this theoretical model explains the outcomes of four actual STAC issues made by James River, May Department Stores, and Houston Lighting & Power Company. Our clinical analysis provides support for the explanatory power of our model. Calibrating the predictions of the model with data from these STACs, we demonstrate a correspondence between theory and actual corporate behavior. As predicted by our model, subgame perfection, or threat credibility, and preplay coordination are central to explaining the outcomes of the STACs.

Debtor-in-possession (DIP) financing is unique secured financing available to firms filing for Chapter 11. Opponents of DIP financing argue that it leads to overinvestment. Alternatively, DIP financing can allow funding for positive net present value projects that increase the likelihood of reorganization and reduce time in bankruptcy. Using a large sample of bankruptcy filings, we find little evidence of systematic overinvestment. DIP financed firms are more likely to emerge from Chapter 11 than non-DIP financed firms. DIP financed firms have a shorter reorganization period; they are quicker to emerge and also quicker to liquidate. The reorganization period is even shorter when prior lenders provide the DIP financing.