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Unbundling ownership and control

Ferreira, Daniel and 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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Identification Number: 172/2007

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
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 22 Jul 2011 16:18
Last Modified: 29 Jun 2012 14:58
URI: http://eprints.lse.ac.uk/id/eprint/37556

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