Karin S. Thorburn

Thorburn’s research focuses on takeovers, bankruptcy, corporate debt, raising equity, and corporate governance.

• B. Espen Eckbo, Andrey Malenko, Karin Thorburn (2025), Corporate takeovers: theory and evidence, Foundations and Trends in Finance. forthcoming Abstract

  In this monograph, we review theories and empirical evidence describing how bidders and targets navigate the takeover process from the decision to initiate through bid revisions and final acceptance (or rejection) of the offer. This navigation involves complex decisions where potential rival bidders are jockeying for competitive advantage through multiple strategic decisions. Sequentially, these involve (1) whether to initiate the takeover process (exploiting a first-mover advantage); (2) purchase target shares in the target prior to the first bid (toehold bidding); (3) how to respond to a prebid target stock price runup (markup pricing); (4) optimal bid revisions (jumps) following rival competition and target management resistance; and (5) deal financing and a strategic payment method choice under information asymmetries and
  a potential for bidder opportunism. We also address more policy-oriented issues related to (6) merger-driven listing dynamics and (7) antitrust policy towards horizontal mergers. We apply the standard auction framework with a single (pivotal) seller as our main theoretical workhorse, which we explain with a set of largely unified variable notations across takeover models. This auction framework, which helps identify theoretical puzzles, is also useful for explaining the outcomes of merger negotiations as it effectively describes the outside option during bargaining.

• B. Espen Eckbo, Xunhua Su, Karin Thorburn (2025), Bank compensation for the penalty-free loan prepayment option: theory and evidence, Management Science. forthcoming Abstract

  While it is standard for corporate bonds to include a loan cancellation fee, a surprising 90% of tranche A commercial and industrial term loans allow borrowers to prepay the loan without penalty. We use a simple framework with dynamic learning to derive testable implications for the required bank compensation when including a penalty-free prepayment option. In this framework, after loan origination, borrowers receive noncontractible public information about the value of the project funded by the bank loan. This information causes some ex post high-value borrowers to prepay or renegotiate the loan to obtain a lower rate, deteriorating the credit quality of the bank’s remaining borrower pool. To avoid credit rationing of borrowers with a high prepayment risk, we show that the bank’s compensation must be in the form of an upfront fee rather than a higher initial loan rate, as the latter only exacerbates the adverse prepayment incentive. The model also accounts for the possibility that in relationship lending, an upfront fee may dominate a loan cancellation fee when the latter triggers costly ex post bargaining with high-value clients. To test model predictions, we construct a prepayment risk index, which contains proxies for borrower upside potential and loan renegotiation costs, and we use aggregate industry-level merger and acquisition (M&A) activity as an instrument for exogenous variation in loan prepayment risk. The tests support that upfront fees increase with borrower prepayment risk. In addition, upfront fees are lower for credit lines and loans with performance-sensitive pricing, as predicted.

• Karin Thorburn, Edith Hotchkiss, Wei Wang (2023), The changing face of Chapter 11 bankruptcy: Insights from recent trends and research, Annual Review of Financial Economics, 15 (), pp. 351-367. Abstract

  Several recent trends have reshaped the nature of bargaining in Chapter 11. These include increasingly complex prebankruptcy capital structures, decreasing time in Chapter 11 due to prepacks and prenegotiated plans, growing use of restructuring support agreements (RSAs) and sales of substantially all assets, an increased number of defaulting private equity–owned firms, and an increase in activity of specialized distressed debt investors. These trends have changed the balance of power in favor of senior secured lenders, who further shape the course of out-of-court negotiations. We examine evidence of the impact of these changes on important stakeholders, including creditors and workers.

• Carsten Bienz, Karin Thorburn, Uwe Waltz (2023), Fund ownership, wealth, and risk-taking: Evidence on private equity managers, Journal of Financial Intermediation, 54 (). 101025 Abstract

  Private equity (PE) managers are required to invest their own money in the funds they manage. We examine the incentive effects of this ownership on the delegated acquisition decision. A simple model shows that PE managers select less risky firms and use more debt, the higher their ownership. We test these predictions for a sample of Norwegian PE funds, using managers’ wealth to capture their relative risk aversion. As predicted, the target company’s cash-flow risk decreases and leverage increases with the manager’s ownership scaled by wealth. Moreover, the overall portfolio risk decreases with ownership, mitigating widespread concerns about excessive risk-taking.

• B. Espen Eckbo, Knut Nygaard, Karin Thorburn (2021), Valuation effects of Norway’s board gender-quota law revisited, Management Science. Abstract

  We highlight the complexities in estimating the valuation effects of board gender quotas by critically revisiting studies of Norway’s pioneering board gender-quota law. We use the short-run event study of Ahern and Dittmar [Ahern KR, Dittmar A (2012) The changing of the boards: The impact on firm valuation of mandated female board representation. Quart. J. Econom. 127(1):137–197] to illustrate (1) the difficulties in attributing quota-related news to specific dates, (2) the need to account for contemporaneous cross-correlation of stock returns when judging the statistical significance of event-related abnormal stock returns, and (3) the fundamental difficulty of separating quota-induced valuation effects from the influences of firm characteristics and macroeconomic events such as the financial crisis. We provide new evidence suggesting that the valuation effect of Norway’s quota law was statistically insignificant. Overall, our evidence suggests that, at the time of the Norwegian quota, the supply of qualified female director candidates was high enough to avoid the negative consequences of the quota highlighted previously in the literature.

• B. Espen Eckbo, Malenko, Andrey, Karin Thorburn (2020), Strategic decisions in takeover auctions: Recent developments, Annual Review of Financial Economics, 12 (), pp. 237-276. Abstract

  We review recent research into how firms navigate four complex decisions in corporate takeovers: (a) deal initiation, (b) pre-offer toehold acquisition, (c) the initial (public) offer price, and (d) the payment method. We focus the evidence on public targets and the theory on first-price or English (ascending-price) auctions with two competing bidders and a single (pivotal) seller. The evidence shows that nearly half of bids are initiated by the target (not a bidder). Notwithstanding the large offer premiums, only a small fraction of bidders acquire a target toehold prior to bidding. The first bid rarely attracts rival bidders, suggesting effective competition deterrence. Bid jumps are high, as predicted when bidding costs are large. Pre-bid stock price run-ups reflect rational market deal anticipation and are understood as such by the deal negotiators. Bidders select stock payment when concerned with adverse selection on the target side of the deal.

• Karin Thorburn, B. Espen Eckbo, Tanakorn Makaew (2018), Are stock-financed takeovers opportunistic?, Journal of Financial Economics, 128 (3), pp. 443-465. Abstract

  The more the target knows about the bidder, the more difficult is paying the target with overpriced bidder shares. Thus, when bidders are opportunistic, the fraction of stock in the deal payment will be lower for better informed targets. We test this intuitive prediction against the alternative that stock payments primarily reflect bidder concerns with target adverse selection, which implies a greater fraction of stock in the deal payment for better informed targets. Discriminating between these two mutually exclusive and nested predictions requires measures of target information about the bidder but not of market mispricing. We find that public bidders systematically use more stock in the payment when the target knows more about the bidder. Tests exploiting exogenous variation in bidder market-to-book ratios also fail to support bidder opportunism. Finally, greater potential competition from private bidders is associated with greater propensity for public bidders to pay in cash.

• Einar Bakke, Tore Leite, Karin Thorburn (2016), Partial Adjustment to Public Information in the Pricing of IPOs, Journal of Financial Intermediation, 32 (), pp. 60-75. Abstract

  Extant literature shows that IPO first-day returns are correlated with market returns preceding the issue. We propose a rational explanation for this puzzling predictability by adding a public signal to Benveniste and Spindt (1989)’s information-based framework. A novel result of our model is that the compensation required by investors to truthfully reveal their information decreases with the public signal. This “incentive effect” receives strong empirical support in a sample of 6300 IPOs in 1983–2012. Controlling for the incentive effect, the positive relation between initial returns and pre-issue market returns disappears for top-tier underwriters, where the order book is held to be most informative, effectively resolving the predictability puzzle.

• Karin Thorburn, Wei Wang, B. Espen Eckbo (2016), How costly is corporate bankruptcy for the CEO?, Journal of Financial Economics, 121 (1), pp. 210-229. Abstract

  We examine chief executive officer (CEO) career and compensation changes for large firms filing for Chapter 11. One-third of the incumbent CEOs maintain executive employment, and these CEOs experience a median compensation change of zero. However, incumbent CEOs leaving the executive labor market suffer a compensation loss with a median present value until age 65 of $7 million (five times pre-departure compensation). The likelihood of leaving decreases with profitability and CEO share ownership. Furthermore, creditor control rights during bankruptcy (through debtor-in-possession financing and large trade credits) are associated with CEO career change. Despite large equity losses (median $11 million for incumbents who stay until filing), the median incumbent does not reduce his stock ownership as the firm approaches bankruptcy.

• Karin Thorburn, B. Espen Eckbo, Rex Thompson, Sandra Betton (2014), Merger negotiations with stock market Feedback, Journal of Finance, 69 (4), pp. 1704-1745. Abstract

  Do preoffer target stock price runups increase bidder takeover costs? We present model-based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one-for-one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Large-sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.

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Current Courses

• FNCE7510 - The Finance Of Buyouts And Acquisitions

  The course focuses on financial tools, techniques, and best practices used in buyouts (financial buyers) and acquisitions (strategic buyers). While it will touch upon various strategic, organizational, and general management issues, the main lens for studying these transactions will be a financial one. It will explore how different buyers approach the process of finding, evaluating, and analyzing opportunities in the corporate-control market; how they structure deals and how deal structure affects both value creation and value division; how they add value after transaction completion; and how they realize their ultimate objectives (such as enhanced market position or a profitable exit). The course is divided into two broad modules. The first module covers mergers and acquisitions, and the second one studies buyouts by private equity partnerships. FNCE 7030 or FNCE 7070 are recommended.

  FNCE7510001 ( Syllabus )

  FNCE7510002 ( Syllabus )

  FNCE7510003 ( Syllabus )

Past Courses

• FNCE2510 - Fnce of Buyouts & Acqs

  The course focuses on financial tools, techniques, and best practices used in buyouts (financial buyers) and acquisitions (strategic buyers). While it will touch upon various strategic, organizational, and general management issues, the main lens for studying these transactions will be a financial one. It will explore how different buyers approach the process of finding, evaluating, and analyzing opportunities in the corporate-control market; how they structure deals and how deal structure affects both value creation and value division; how they add value after transaction completion; and how they realize their ultimate objectives (such as enhanced market position or a profitable exit). The course is divided into two broad modules. The first module covers mergers and acquisitions, and the second one studies buyouts by private equity partnerships. FNCE 2030 or FNCE 2070 are recommended.

• FNCE7510 - Fnce of Buyouts & Acqs

  The course focuses on financial tools, techniques, and best practices used in buyouts (financial buyers) and acquisitions (strategic buyers). While it will touch upon various strategic, organizational, and general management issues, the main lens for studying these transactions will be a financial one. It will explore how different buyers approach the process of finding, evaluating, and analyzing opportunities in the corporate-control market; how they structure deals and how deal structure affects both value creation and value division; how they add value after transaction completion; and how they realize their ultimate objectives (such as enhanced market position or a profitable exit). The course is divided into two broad modules. The first module covers mergers and acquisitions, and the second one studies buyouts by private equity partnerships. FNCE 7030 or FNCE 7070 are recommended.

Knowledge @ Wharton

• The Lasting Impact of a 1976 Paper on Stock Information and Prices, Knowledge @ Wharton - 11/11/2025
• Do School Cell Phone Bans Help Students Do Better?, Knowledge @ Wharton - 11/11/2025
• The Business Side of FOMO | Barbara Kahn, Knowledge @ Wharton - 11/11/2025
• Understanding America’s $38 Trillion Debt and the Path Forward, Knowledge @ Wharton - 11/07/2025
• How Companies Are Adapting to the Generative AI Revolution, Knowledge @ Wharton - 11/05/2025
• Early NBA Trends With Dean Oliver, Knowledge @ Wharton - 11/05/2025
• What We Know About AI Fighting Corruption | Philip Nichols, Knowledge @ Wharton - 11/04/2025
• Why Is Your Credit Card Rate So High?, Knowledge @ Wharton - 11/03/2025
• What Will It Take to Solve America’s Housing Crisis?, Knowledge @ Wharton - 11/03/2025
• Wharton Welcomes 13 New Faculty Experts, Knowledge @ Wharton - 10/31/2025