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Signalling to dispersed shareholders and corporate control

Burkart, Mike and Lee, Samuel (2015) Signalling to dispersed shareholders and corporate control. Review of Economic Studies, 82 (3). pp. 922-962. ISSN 0034-6527

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Identification Number: 10.1093/restud/rdv005

Abstract

This article analyses how outsiders, such as bidders or activist investors, overcome the lack of coordination and information among dispersed shareholders. We identify the two basic means to achieve this goal. First, the outsider must relinquish private benefits in a manner that is informative about security benefits. We show under which conditions this is feasible and which acquisition strategies used in practice meet these conditions. Second, the outsider can alternatively use derivatives to drive a wedge between her voting power and her economic interest in the firm. Such unbundling of ownership and control, while typically considered a source of corporate governance problems, is an efficient response to the frictions dispersed ownership causes for control contestability. We also show that unbundling comes with costs and benefits for the bidder's incentives to improve firm value.

Item Type: Article
Official URL: https://academic.oup.com/restud
Additional Information: © 2015 The Author
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Sets: Departments > Finance
Date Deposited: 22 Feb 2017 09:39
Last Modified: 20 Mar 2019 02:47
URI: http://eprints.lse.ac.uk/id/eprint/69538

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