Abstract

http://ssrn.com/abstract=147590
 
 

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Citations (179)



 
 

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Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights


Lucian A. Bebchuk


Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Reinier Kraakman


Harvard Law School; European Corporate Governance Institute

George G. Triantis


Stanford Law School

2000

Concentrated Corporate Ownership, (R. Morck, ed.), pp. 295-315, 2000
Harvard Law and Economics Discussion Paper No. 249

Abstract:     
This paper examines common arrangements for separating control from cash flow rights: stock pyramids, cross-ownership structures, and dual class equity structures. We describe the ways in which such arrangements enable a controlling shareholder or group to maintain a complete lock on the control of a company while holding less than a majority of the cash flow rights associated with its equity. Next, we analyze the consequences and agency costs of these arrangements. In particular, we show that they have the potential to create very large agency costs—costs that are an order of magnitude larger than those associated with controlling shareholders who hold a majority of the cash flow rights in their companies. The agency costs of these structures, we suggest, are also likely to exceed the agency costs of attending highly leveraged capital structures. Finally, we put forward an agenda for research concerning structures separating control from cash flow rights.

Number of Pages in PDF File: 29

Keywords: Pyramids, dual-class, cross-ownership, cash flow nights, votes, agency costs, corporate governance, law and finance

JEL Classification: G30

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Date posted: February 1, 1999 ; Last revised: October 2, 2009

Suggested Citation

Bebchuk, Lucian A. and Kraakman, Reinier and Triantis, George G., Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Creation and Agency Costs of Separating Control from Cash Flow Rights (2000). Concentrated Corporate Ownership, (R. Morck, ed.), pp. 295-315, 2000; Harvard Law and Economics Discussion Paper No. 249. Available at SSRN: http://ssrn.com/abstract=147590 or http://dx.doi.org/10.2139/ssrn.147590

Contact Information

Lucian A. Bebchuk (Contact Author)
Harvard Law School ( email )
Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Reinier H. Kraakman
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-3586 (Phone)
617-496-6118 (Fax)
European Corporate Governance Institute ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
George G. Triantis
Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
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References:  25
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