Shared Ownership Versus Third-Party Ownership

19 Pages Posted: 30 Nov 2010 Last revised: 5 Oct 2012

See all articles by Stephan Nüesch

Stephan Nüesch

University of Muenster

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Date Written: October 5, 2012

Abstract

Competitive advantage is typically based on a unique nexus of firm-specific investments that creates inimitable quasi-rents. As writing complete contracts on how to distribute the quasi-rents is impossible, stakeholders may underinvest in firm-specific assets to avoid the hold-up risk. This paper contrasts two corporate governance models as institutional safeguards for firm-specific investments: shared ownership that assigns the rights of residual control to the firm-specific investors, and third-party ownership that assigns the rights of residual control to independent fiduciaries. We argue that shared ownership entails higher costs of collective decision-making but lower agency costs than third-party ownership. The paper presents testable propositions, conditional on contextual factors, on which governance structure is better able to incentivize and protect firm-specific investments.

Keywords: Corporate Governance, Firm-Specific Investments, Residual Rights of Control, Third-Party Ownership

JEL Classification: G30, G38, K22

Suggested Citation

Nüesch, Stephan and Franck, Egon P., Shared Ownership Versus Third-Party Ownership (October 5, 2012). Available at SSRN: https://ssrn.com/abstract=1716908 or http://dx.doi.org/10.2139/ssrn.1716908

Stephan Nüesch (Contact Author)

University of Muenster ( email )

Schlossplatz 2
Muenster, D-48149
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/uf

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

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