Signal Quality and the Option Value of Shareholder Rights
Posted: 20 Jan 2012
Date Written: January 5, 2012
Abstract
We present a model that shows that strong shareholder rights have a greater impact on value for firms that operate in less opaque information environments. We model shareholder rights as an option at the disposal of shareholders to stop projects chosen by a manager, and show that the value of this veto increases with the precision of a signal the shareholder receives about project type. The model has implications for design of regulatory policy aimed at strengthening shareholder rights.
Keywords: Shareholder rights, Veto power, Agency conflicts, Signal precision
JEL Classification: G32, G38
Suggested Citation: Suggested Citation
Mukherjee, Abhiroop, Signal Quality and the Option Value of Shareholder Rights (January 5, 2012). Available at SSRN: https://ssrn.com/abstract=1988409 or http://dx.doi.org/10.2139/ssrn.1988409
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