Corporate Ownership Structures: Private Versus Social Optimality
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)
Working Paper #181, Harvard Law School Center for Law and Economics
This paper analyzes the inefficiencies that might arise in the ownership structure chosen at the initial public offering stage. We show that, contrary to what is commonly believed, the desire of initial owners to maximize their proceeds leads them to choices that, although privately optimal, may be socially inefficient. This distortion tends to be in the direction of excessive incidence of controlling shareholder structures and excessive divestment of cash flow rights. Our analysis has far-reaching policy implications for dual class stock, stock pyramiding, sale of control rules, and public offerings of minority shares. Among its positive implications, our analysis suggests reasons for the substantial differences in the incidence of control blocks across different countries.
JEL Classification: G32, G38Accepted Paper Series
Date posted: June 6, 1996
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