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Private versus Public Ownership: Investment, Ownership Distribution, and Optimality

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Author Info
 Shah, Salman
Thakor, Anjan V

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Abstract

The authors examine the choice between private and public incorporation of an asset for an entrep reneur who hires a manager with superior information about the asset' s return. Public incorporation is shown to be preferred when (1) capi tal market issue costs are low, or (2) the asset's idiosyncratic risk is high and the owner is either sufficiently risk averse or sufficie ntly "optimistic" about the asset's expected return. Thus, those as sets deemed most valuable by their owners will be be publicly incorpo rated. The authors also explore the impact of incorporation mode-priv ate versus public-and information structure on the firm's investment policy and ownership distribution. Copyright 1988 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 43 (1988)
Issue (Month): 1 (March)
Pages: 41-59
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Handle: RePEc:bla:jfinan:v:43:y:1988:i:1:p:41-59

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December. [Downloadable!] (restricted)
  2. W. Kip Viscusi, 1978. "A Note on "Lemons" Markets with Quality Certification," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 277-279, Spring. [Downloadable!] (restricted)
  3. Trueman, Brett, 1983. " Optimality of the Disclosure of Private Information in a Production-Exchange Economy," Journal of Finance, American Finance Association, vol. 38(3), pages 913-24, June. [Downloadable!] (restricted)
  4. Bhattacharya, Sudipto & Pfleiderer, Paul, 1985. "Delegated portfolio management," Journal of Economic Theory, Elsevier, vol. 36(1), pages 1-25, June. [Downloadable!] (restricted)
  5. Bhattacharya, Sudipto & Ritter, Jay R, 1983. "Innovation and Communication: Signalling with Partial Disclosure," Review of Economic Studies, Blackwell Publishing, vol. 50(2), pages 331-46, April. [Downloadable!] (restricted)
  6. Holmstrom, Bengt R & Weiss, Laurence, 1985. "Managerial Incentives, Investment, and Aggregate Implications: Scale Effects," Review of Economic Studies, Blackwell Publishing, vol. 52(3), pages 403-25, July. [Downloadable!] (restricted)
  7. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  8. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January. [Downloadable!] (restricted)
  9. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May. [Downloadable!] (restricted)
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  10. Campbell, Tim S., 1979. "Optimal Investment Financing Decisions and the Value of Confidentiality," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(05), pages 913-924, December. [Downloadable!]
  11. Roll, Richard, 1978. "Ambiguity when Performance is Measured by the Securities Market Line," Journal of Finance, American Finance Association, vol. 33(4), pages 1051-69, September. [Downloadable!] (restricted)
  12. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December. [Downloadable!] (restricted)
  13. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  14. Shanken, Jay, 1982. " The Arbitrage Pricing Theory: Is It Testable?," Journal of Finance, American Finance Association, vol. 37(5), pages 1129-40, December. [Downloadable!] (restricted)
  15. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June. [Downloadable!] (restricted)
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  16. Heckerman, Donald G., 1975. "Motivating managers to make investment decisions," Journal of Financial Economics, Elsevier, vol. 2(3), pages 273-292, September. [Downloadable!] (restricted)
  17. Campbell, Tim S & Kracaw, William A, 1980. " Information Production, Market Signalling, and the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 35(4), pages 863-82, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Boot, Arnoud W A & Gopalan, Radhakrishnan & Thakor, Anjan, 2004. "Go Public or Stay Private: A Theory of Entrepreneurial Choice," CEPR Discussion Papers 4219, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Boot, Arnoud W A & Gopalan, Radhakrishnan & Thakor, Anjan, 2006. "Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?," CEPR Discussion Papers 5510, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Fernandez-Olmos, M. & Rosell-Martinez, J. & Espitia-Escuer, M., 2008. "Double Sided Moral Hazard and Share Contracts in agriculture," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43863, European Association of Agricultural Economists. [Downloadable!]
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