The Freeze-Out Bond Exchange Offer : An Experimental Approach

A freeze-out bond exchange offer occurs when a firm wants to replace an existing bond, issued with a covenant, with a new bond that does not have this kind of restriction. If the bondholders are not fully coordinated, the shareholders can make an unfair exchange offer to capture wealth from the bondholders. In this paper, we made two experiments based on a game with three players, and we introduced the role of information and the role of experience. The results are statistically significant, since, in the first experiment, they show that greater experience is a dominant factor with respect to information. Conversely, in the second experiment, the given information became dominant in respect to experience. The percentages of the choices for the symmetric Nash equilibria are greater in the first experiment, but in the second one, the choices of the asymmetric Nash equilibrium, Pareto superior in the game, are greater with respect to the first experiment. These results open the possibility for policy implications to affect the generality of exchange offers in the bond market