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Unbundling ownership and control

Ferreira, Daniel, Ornelas, Emanuel and Turner, John L. (2007) Unbundling ownership and control. ECGI Finance Working Paper, 172/2007. European Corporate Governance Institute.

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Abstract

We study optimal corporate control allocations under asymmetric information. We modify the canonical partnership dissolution model to allow for the endogenous determination of ex post ownership and control structures. Using a mechanism design approach, we fully characterize the optimal restructuring mechanism. This mechanism requires increasing the number of shares of the incumbent insider if he remains in control, while giving him a golden parachute that may include both stock and cash if he is deposed. The model exemplifies a novel explanation for the prevalence and persistence of the separation of ownership from control: efficiency in control contests is more easily achieved when ownership of cash flow rights is not concentrated in the hands of insiders. The model generates several novel empirical predictions.

Item Type: Monograph (Working Paper)
Official URL: http://www.ecgi.org/wp/
Additional Information: © 2007 The Authors
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 172/2007
Date Deposited: 22 Jul 2011 16:18
URL: http://eprints.lse.ac.uk/37556/

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