This paper analyses how outsiders, such as bidders or activist investors, overcome the lack of coordination and information among dispersed shareholders. We identify the two basic means to achieve this goal. First, the outsider must relinquish private benefits in a manner that is informative about security benefits.
We show under which conditions this is feasible and which acquisition strategies used in practice meet these conditions. Second, the outsider can alternatively use derivatives to drive a wedge between her voting power and her economic interest in the firm. Such separation of ownership and control, while typically considered a source of corporate governance problems, is an efficient response to the frictions dispersed ownership causes for control contestability.
We developed a model under which the allocation of control rights between shareholders and managers (“governance structure”) is irrelevant to firm value. In our model, governance structures affect managers’ incentive to invest, as strong...Read more
An important milestone often reached in the life of an activist engagement is entering into a “settlement” agreement between the activist and the target’s board. Using a comprehensive hand-collected data set, we analyze the drivers, nature, and...Read more
The analysis of corporate governance has been a one-sided affair. The focus has been on “internal” accountability mechanisms, namely boards and shareholders. Each has become more effective since debates about corporate governance began in earnest...Read more
This essay views The Modern Corporation and Private Property from the perspective of its junior coauthor, Gardiner Means. Means generated the book’s statistical showings of deepening corporate concentration and widening separation of ownership...Read more