Zsuzsanna Fluck
ABSTRACT
This paper investigates the distribution of equity ownership between
entrenched corporate insiders and dispersed outsiders when management has
the ability to divert or manipulate the cash flows and when it is costly
for equity holders to verify or prove any managerial wrongdoing for a third
party such as a court. Management chooses the distribution of equity ownership
so as to maximize private benefits against the risk of potential control
challenges. When shareholders are long term oriented, then outside shares
trade at a premium over their value to management, and management is inclined
to sell of its equity stake to dispersed outsiders. When shareholders are
short-term oriented, then outside share trade at a discount below their
value to management, and disciplinary pressure can be substantially reduced
via strategic share purchases.
Subject: Corporate Ownership and Control (Theoretical)
Fluck: (212) 998-0341 zfluck@stern.nyu.edu
To request a copy of this paper click here
The Finance Department Working Paper Series has been generously sponsored
by