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Capital and Ownership Structures, and the Market for Corporate Control

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  • Israel, Ronen
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    Abstract

    The author analyzes optimal capital and ownership structures as resulting from anticipated future control contests. He focuses on leverage as a device that enables the incumbent management to extract the maximum value from the rival. He shows that firm value depends on both capital and ownership structures. The analysis leads to the following predictions: (1) more efficient managers use less debt, (2) firms facing better rivals for control issue more debt, and (3) firms with supermajority rules issue less debt. Several predictions are consistent with known empirical regularities. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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    Bibliographic Info

    Article provided by Society for Financial Studies in its journal Review of Financial Studies.

    Volume (Year): 5 (1992)
    Issue (Month): 2 ()
    Pages: 181-98

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    Handle: RePEc:oup:rfinst:v:5:y:1992:i:2:p:181-98

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    Cited by:
    1. Luc Laeven & Ross Levine, 2006. "Complex Ownership Structures and Corporate Valuations," NBER Working Papers 12675, National Bureau of Economic Research, Inc.
    2. Sarig, Oded H. & Talmor, Eli, 1997. "In defense of defensive measures," Journal of Corporate Finance, Elsevier, vol. 3(3), pages 277-297, June.
    3. Lucian Arye Bebchuk & Luigi Zingales, 1996. "Corporate Ownership Structures: Private versus Social Optimality," NBER Working Papers 5584, National Bureau of Economic Research, Inc.
    4. Jandik, Tomas & Makhija, Anil K., 2005. "Debt, debt structure and corporate performance after unsuccessful takeovers: evidence from targets that remain independent," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 882-914, October.
    5. Jandik, Tomas & Makhija, Anil K., 2004. "Debt, Debt Structure and Corporate Performance after Unsuccessful Takeovers: Evidence from Targets that Remain Independent," Working Paper Series 2005-6, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Hogfeldt, Peter & Hogholm, Kenneth, 2000. "A law and finance theory of strategic blocking and preemptive bidding in takeovers," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 403-425, December.
    7. Jandik, Tomas & Makhija, Anil K., 2005. "The Impact of the Structure of Debt on Target Gains," Working Paper Series 2005-5, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    8. Hsihui Chang & Hiu Choy & Kam-Ming Wan, 2012. "Effect of the Sarbanes–Oxley act on CEOs’ stock ownership and pay-performance sensitivity," Review of Quantitative Finance and Accounting, Springer, vol. 38(2), pages 177-207, February.
    9. Kalay, Avner & Zender, Jaime F., 1997. "Bankruptcy, Warrants, and State-Contingent Changes in the Ownership of Control," Journal of Financial Intermediation, Elsevier, vol. 6(4), pages 347-379, October.

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