FIN-98-023


Organizational Form Changes: Increasing Stockholder Wealth or Serving Managerial Interests?

February 1998

Aswath Damodaran, Kose John, Crocker H Liu

ABSTRACT
We study changes in organizational form in the real estate industry based on a sample of 128 changes announced during the period from January 1, 1966 through December 31, 1989. The rich variety of organizational forms of real estate firms with varying degrees of restrictiveness of the equity contract provides the setting for our study. We examine whether these changes are motivated primarily by the desire to increase stockholder wealth and improve financial health or by managerial self interests. By looking at the characteristics of firms moving from one organizational form to another, the reasons provided by managers at the time of the organizational change, the stock price reaction to the announcement of the changes are motivated primarily by stockholder wealth maximization. While managerial interests may also be served in the process, they do not appear to be at the expense of the stockholders.

Damodaran: (212) 998-0340 adamodar@stern,nyu.edu
John: (212) 998-0337 kjohn@stern.nyu.edu
Liu: (212) 998-0353 cliu@stern.nyu.edu

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