Unbundling Ownership and Control
London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
London School of Economics & Political Science (LSE) - Department of Management; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)
John L. Turner
University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics
May 27, 2013
Journal of Economics & Management Strategy (Forthcoming)
We study control contests under asymmetric information. Using a mechanism design approach, we fully characterize the optimal control contest mechanism. The optimal mechanism requires increasing the number of shares owned by the incumbent insider if he remains in control, while giving him a golden parachute that includes both shares and cash if he is deposed. The model underscores 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.
Number of Pages in PDF File: 43
Keywords: Corporate control, restructuring, mechanism design
JEL Classification: G32, G34, D82
Date posted: October 31, 2005 ; Last revised: May 28, 2013
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