Corporate Governance and the Role of Hybrid Financial Instruments in the UK and US
Corporate Finance and Capital Markets Law Review, 2011
13 Pages Posted: 28 Sep 2011
Date Written: September 27, 2011
In this short article, I focus on the advantages different capital structures, and in particular certain hybrid financial instruments, offer from a corporate governance perspective. I argue that the flexibility of combining governance and cash-flow rights through hybrids has real implications on the governance of firms, offering some advantages that could not be achieved in the same form by simply combining standard debt and equity contracts (ie ordinary shares). In particular, one of the areas I look at are high-risk and high-growth businesses at the early stage of their business development. Such start-ups seem to be the only users of hybrid financial instruments mainly motivated by elements outside the world of regulatory arbitrage.
Keywords: Corporate governance, hybrid financial instruments, veto rights, drag-along, tag-along, private equity, venture capital
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