We provide a new rationale for pyramidal ownership in family business groups. A pyramid allows a family to access all retained earnings of a firm it already controls to set up a new firm, and to share the new firm's nondiverted payoff with shareholders of the original firm. Our model is consistent with recent evidence of a small separation between ownership and control in some pyramids, and can differentiate between pyramids and dual-class shares, even when either method can achieve the same deviation from one share-one vote. Other predictions of the model are consistent with both systematic and anecdotal evidence. Copyright 2006 by The American Finance Association.
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Volume (Year): 61 (2006) Issue (Month): 6 (December) Pages: 2637-2680 Download reference. The following formats are available: HTML
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