The Dynamics of the Management-Shareholder Conflict

41 Pages Posted: 7 Nov 2008

See all articles by Zsuzsanna Fluck

Zsuzsanna Fluck

Michigan State University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: January 1998

Abstract

This paper investigates the distribution of equity ownership between entrenched corporate insiders and dispersed outsiders when management has the ability to divert or manipulate the cash flows and when it is costly for equity holders to verify or prove any managerial wrongdoing for a third party such as a court. Management chooses the distribution of equity ownership so as to maximize private benefits against the risk of potential control challenges. When shareholders are long term oriented, then outside shares trade at a premium over their value to management, and management is inclined to sell of its equity stake to dispersed outsiders. When shareholders are short-term oriented, then outside share trade at a discount below their value to management, and disciplinary pressure can be substantially reduced via strategic share purchases.

Suggested Citation

Fluck, Zsuzsanna, The Dynamics of the Management-Shareholder Conflict (January 1998). NYU Working Paper No. FIN-98-037. Available at SSRN: https://ssrn.com/abstract=1297100

Zsuzsanna Fluck (Contact Author)

Michigan State University - Department of Finance ( email )

Eli Broad Graduate School of Management
315 Eppley Center
East Lansing, MI 48824-1122
United States
517-353-3019 (Phone)
517-432-1080 (Fax)

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