Unbundling Ownership and Control

Journal of Economics & Management Strategy (Forthcoming)

43 Pages Posted: 31 Oct 2005 Last revised: 28 May 2013

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Emanuel Ornelas

Sao Paulo School of Economics

John L. Turner

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: May 27, 2013

Abstract

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.

Keywords: Corporate control, restructuring, mechanism design

JEL Classification: G32, G34, D82

Suggested Citation

Ferreira, Daniel and Ornelas, Emanuel and Turner, John L., Unbundling Ownership and Control (May 27, 2013). Journal of Economics & Management Strategy (Forthcoming). Available at SSRN: https://ssrn.com/abstract=976409 or http://dx.doi.org/10.2139/ssrn.976409

Daniel Ferreira

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)

HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Emanuel Ornelas

Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://https://sites.google.com/site/emanuelornelaseo/

John L. Turner (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

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